Question

Jon is a manager of a major insurance regional company. As regional manager his compensation package comprises of a base salary, commissions and a bonus when the region sells policies in excess of its quota. Jon has been under enormous financial pressure stemming largely from two factors. First, he is experiencing a mounting personal debt due to a family member's illness. Second, compounding his worries, the region's sales of new policies have dropped below the normal quota for the first time in years You have been working for Jon for two years and like everyone you are happy to work under such a supportive boss You are very sympathetic to his personal circumstances. In your position as accountant, for the regional office you are only too aware of the drop in new policy sales and the impact this will have on the managers bonus. While you are working late at yraceod. Jon stops by your office She asks you to change the manner in which you have accounted for a new property Insurance policy for a large local business. A substantial cheque.came in the mail on December 31 the last day of the reporting year. The period covers the period beginning on January 5. You deposited the cheque correctly, debited the cash account and credited unearned revenue account. Jon says: "Hey we have the money this year why don't we count the revenue this year? never understood why you accountants are so picky about these things anyway. I want to change the way you have recorded the transaction, want you to credit the revenue account. Another thing is that I have done favors for you in the past and I am asking for a small thing in return." With that he left for the day 1. How should you handle the situation? (5) 2. What are the ethical implications of Jon's request? (5) 3. Who are the parties that would be helped or harmed if you complied with the request? (5) 4. If you fail to comply with the request, how will you explain your position to him in the moming? (5)

Answer 1

1) The condition is tough generally the conceivable consequences to you through your superior. Mr. Jon, if you do not encounter his request. At the equivalent time, the ethical and specialized response is to follow the income recognition rule and description for the cash collection as deferred revenue. To high the collection as revenue exaggerates revenue in the current period.

2) In the short time period, Mr. Jon would assistance by getting a more bonus. You also assistance in the short period of time since, you would not involvement any adverse consequences from your superior. Though, here is the danger that erstwhile in the upcoming may be through an audit, the mistake will be initiated. At that point, together you and Mr. Jon might be caught up in a fraud. In addition, this might be the first occurrence where you are existence asked to justification for a business in destruction of established principle or firm polices. Here is a very strong chance Mr. Jon might ask you for extra errands in the upcoming if you prove your enthusiasm at this point.

3) In the higher angle, shareholders are hurt by the confusing revenue figures by trusting on them to buying stock at overstated prices. In addition, creditors may lend moneys to the insurance company founded on the deceptive information. The negative impression of the detection of confusing business information will reason stock prices to decrease, affecting stockholders to mislay on their investment. Creditors will be apprehensive about forthcoming obligation payment. You resolve also knowledge moderated self- detail since of the desecration of your reliability.

4) Directors are go- between for shareholders. to performance in techniques to the advantage of the trough at the disadvantage of the shareholders if unsuitable. So, the ethically correct reply is to fail to fulfill with Mr. Jon request. Enlightening your place to Mr. Jon will not be easy. You might want to rapid that you comprehend the cause for his appeal, but cannot virtuously or work wise fulfill.