Question

Scenario | Ethics Case 18-8 | The Swiss label maker; value of shares issued for equipment Bricker Graphics is a privately held company specializing in package labels. Representatives of the firm have just returned from Switzerland, where a Swiss firm is manufacturing a custom-made high speed, color labeling machine. Confidence is high that the new machine will help rescue Bricker from sharply declining profitability. Bricker's chief operating officer, Don Benson, has been under fire for not reaching the company's performance goals of achieving a rate of return on assets of at least 12%. The afternoon of his return from Switzerland, Benson called Susan Sharp into his office. Susan is Bricker's Controller. Questions | Ethics Case 18-8 | The Swiss label maker; value of shares issued for equipment How will Benson's plan affect the return measure? What accounting issue is involved? Is the proposal ethical? Who would be affected if the proposal is implemented?

Answer 1

If the shares will be issued for the purchase of new customized high speed label equipment then rate of return figures will be false in reality. The rate of return will pretend to be favourable in the books of accounts but actually will not present the true condition of the company I.e unfavorable rate of return.

The issue that is involved as regards to the accounting is the substance over form I.e. the financial statements of the company will no longer reflect the true financial status of the company.

As per the GAAP rules this is highly unethical as adopting the above plan will render any future statement of the company to be of false and misleading nature.

This proposal if implemented will affect almost all the stakeholders one by one with different magnitudes. It will affect Benson and Susan as such kind of manipulations nowadays are treated as fraud thereby leading to penalties and even imprisonment. It will affect the company itself as such kind of manipulations once revealed will result into negative publicity and can even result into undermined confidence of employees and customers too. A company must not record any transaction in a manner that hides its true intention.