Question

Scott is an accountant at Tropicana Bhd., a manufacturer of electronic appliances in Kota Warisan. The company presently has total sales of $35 million. It is the end of the first quarter 2018. Scott is hurriedly trying to prepare a general ledger trial balance so that quarterly financial statements can be prepared and released to management and the regulatory agencies. The total credits on the trial balance exceed the debits by $1,500. In order to meet the deadline, Scott decides to force the debits and credits into balance by adding the amount of the difference to the Equipment account. He chose Equipment because it is one of the larger account balance; percentage-wise, it will be least misstated. Scott “plugs” the difference! He believes that the difference will not affect anyone’s decision. He wishes that he had another few days to find the error but realizes that the financial statements are already late.

a. Identify three stakeholders in this situation? Explain the importance of these stakeholders in the above situation.

b. Critically discuss the ethical issues involved in this case?

c. What are Scott’s alternatives? Explain all the three alternatives.

Answer 1

(a) The three stakeholders are employees (accountant), Management, and Regulatory Agencies. Financial information contain in annual reports that the companies are published in periodically. That period is identified as reporting period. Company obligates to provide financial information to their various stakeholders during the past reporting period

(b) As a subtopic of fraudulent financial reporting, disclosure violations are errors of ethical omission. While intentionally recording transactions in a manner that is not in accordance with generally accepted accounting principles is considered fraudulent financial reporting, the failure to disclose information to investors that could change their decisions about investing in the company could be considered fraudulent financial reporting, as well. Company executives must walk a fine line; it is important for management to protect the company's proprietary information.

(c) Scott may opt for any of these alternatives -

1. Find the corresponding debit for excess credit amount of $1500.
2. Treat the amount as loan to the company, payable at future date.
3. Treat as the additional capital introduced.