Question

The Midnight Journal Entry: Identify and critically evaluate the case study issue(s) from the perspective of Business, Government, and Society, individually; Critically evaluate and discuss how the issues are inter-related.

In March 2003, Richard Okumoto, the newly-appointed chief financial officer of Electro Scientific Industries, Inc, uncovered what he believed to be a serious accounting fraud. Around midnight several months earlier, a group of managers, led by a man who later became CEO, had reversed an accrued liability of $977,000 associated with the anticipated cost of pension benefits for employees in Asia. This midnight journal entry had the effect of allowing the company to report a gain, rather than a loss, for the quarter. In subsequent investigation, Okumoto learned that the company had received a legal opinion that the reversal was improper. Consequently, he believed that company’s earnings should be restated. When he approached the CEO, the general counsel, and the company’s outside auditors with his concerns, however, he got the same response-the reversed accrual was not a problem, and he should just 'get past it.' Okumoto had to decide how best to act on his conviction that the company had committed an unethical and illegal act, while minimizing the risk to his own personal safety and future career prospects.

Answer 1

From the society point of view the reversed accural is unethical and illegal and Okumoto should reveal and readjust what illegal happened. The business firms have some sort of moral and social responsibility towards the society that must be fulfilled.The distorted financial transaction will show a wrong financial position of firm and it will harm the interest of society.

From the point of view of government the illegal and unethical conduct happened in the company should be reported and the true position of the firm should be revealed.

From the point of view of a business firm it may be beneficial for some time but to show wrong financial situation is a fraud to people ,government and society that will be harmful for the firm in long run.