Ethics in Accounting

Case Study Questions

What is the accounting problem that the Linbarger Company faces?

Linbarger Company is operating more on credit rather than selling in cash.  They have a higher collectable accounting receivable which surpasses the industry’s required threshold. According to the company’s industry standard and lender’s mandate, the company must have at least $200,000 in its cash account. To properly understand the current financial state of a company, accounting takes into consideration the difference between the expenditure incurred and revenue collected but not the time at which the cash was swapped (Duska, Duska, & Kury, 2018). Legally, this is referred to as accrual accounting and is founded on matching principle (the revenue earned should be matched with all expenditures incurred.

What are the ethical considerations in this case? Provide a rationale for why these are ethical considerations.  

Based on this case scenario, the Linbarger Company is not in a position to generate sufficient cash as required by company industry policies. The company is operating under loss based on this particular accounting period. The decision to delay for a single day, it will be ethically wrong. The integrity and accounting standard of the company will be compromised. By delaying the update of the general ledger means that it will enter into 1^st June, which, most probably is a new financial year. 

What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance? 

The inherent negative impact of failing to adhere to Lisa’s instructions is that the company will not be in a position to reach its threshold of $200,000 cash balance in its cash accounts as required. The company will be forced to default on the loan agreement and this could result to close down of the company hence creating unemployment. In addition, the controller will definitely become jobs. Disobedience to one’s seniors is translated as insubordination. The impact of the company breaching the loan agreement is more serious. 

Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.

Compliance with Lisa’s instructions will negatively impact the assistant controller. It is assumed that the insurance company will react positively on the matter, assuming that Lisa’s instructions are followed to the latter.  In addition, all the stakeholders of the Linbarger Company will be negatively affected, either directly or indirectly. Generally, any unethical practice involving fraud causes more harm than benefits (Duska, Duska, & Kury, 2018). It is a responsibility of accounting to avoid unethical practices. Interfering with accounting regulations will change the purpose of accounting. The owners of the company will be at a disadvantageous side since the company can be closed down prematurely due to unethical practices of interfering with the books of account.

What is one alternative that you could pursue in this scenario? Support your recommendations with the information you learned in this class. 

One alternative at my disposal in this scenario is to apply a short term loan rule. In this rule, all customers will be required to take only short term loans. Such a move will enable the customers to clear their loans early enough to allow timely balancing of receipt book. I will monitor and hence manage accounts and cash flow to avoid errors due to employees especially in the journal entry. However, I will allow loyal customers to access advances at their convenient time. The company will always operate under the demands of integrity and professionalism. 

Reference

Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. Wiley-Blackwell.