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CASE 2.5 Ethics and Window Dressing LO2-49 The date is November 1S. current year. You are the chief executive officer of Omeg
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Wordmaster software Co. denoted as WS co.

Omega Software denoted as O software

1)

Liquidity position always drives with two-factor one is current assets and another one is a current liability. Cash is an important item in the balance sheet to improve the financial position and the company always wondering to improve the financial statement to attract prospective investors or bankers to avail loans. In the given case, O software planning to buy WS co. in $8 million in cash in December but at the same time, they delay the payment of acquisition by mutual understanding with WS co. and this will improve the liquidity health of the company and sounds more liquid.

If O software will disclose the acquisition of WS co. in the notes to the accounts of the financial statement to the stakeholders, then there no ethical and legal repercussions of the act.

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2)

Each item in the financial statement act as a financial tool to evaluate companies' financial status. Manipulating or omitting any item would be unethical and illegal. This action will attract direct violation of federal securities laws and persons in charge will be facing criminal charges or penalties.

In the given case, deliberate omission of liabilities or understated or overstated other items to improve financial indicators will definitely be caught by the auditor or the federal agencies.

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3)

There is nothing unethical or illegal by converting short-term loans into long-term by paying more interest on them. Companies often build strategies to improve the companies financial position by doing some adjustments by disclosing the facts in the note to the accounts.

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4)

The intentional violation of GAAP in the hope of misleading the stakeholders of the financial statement is unethical and illegal. Normally the company follows accounting principles in conformity with GAAP and discloses in a financial statement every year. In the given case, the company records assets at its historical cost but they will be planning to show at market value for window dressing of the financial position.

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