Case Study: You Are A Staff Argument At Brave Corporation
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You are a staff accountant at Brave Corporation. The controller of the company, Homer Readdy, is concerned that profits reported in the annual report will not meet those forecast at the beginning of the year. He has asked you to decrease the amount of annual depreciation charged on certain equipment by revising the estimated life. When you tell Mr. Readdy that you are uncomfortable revising useful life solely to ‘manage’ profit, he responds by saying, ‘oh, everybody does it.’ You realize if you fail to do what your boss requests you may receive a poor performance evaluation, and may even lose your job. You also know this is not appropriate practice. How will you resolve this dilemma?
To help think through the problem, you’ve decided to write…show more content… Obtain all the facts relevant to the situation
- The controller of the company, Homer Readdy, is concerned that profits reported in the annual report will not meet that forecast at the beginning of the year. He has asked me to decrease the amount of annual depreciation charged on certain equipment by revising the estimated life.
- If I fail to do what your boss requests, I may receive a poor performance evaluation, and may even lose my job.
- I also know this is not appropriate practice.
2. Identify ethical issues. -- The intentional revision of the life of equipment is unethical for whatever the reason. An ethical person would never change the estimates used for the life of equipment if the change is an attempt to better match cost and revenues and is a better allocation of the asset’s depreciable cost over the equipment’s useful life. In this situation, it looks like that the controller wanting a change in the life of equipment only to improve earnings is unethical.
3. Determine who will be affected by the way these issues are resolved
- The company could get benefits since earnings temporary increase. Because when we revise the estimated life of equipment, there would be higher earnings in future periods. Once the useful life of equipment has been exhausted, the company will not have depreciation expense. That could meaningfully increase