Gena Schmitt instructions the company
If you do not comply with Gena Schmitt instructions the company, that is Riverside Bottling Company will suffer, because they will default upon the loan agreement. This may, as outlined by Gena lead to the closure of the respective organisation. Therefore, apart from a loss for the company, leading to its demise, the assistance controller will also suffer by losing his job. Indeed all the internal staff within the organisation will suffer from the loss of their job.
If the assistant controller complies with Gena instructions, the other party, that is the provider of the loan will suffer, because the company will not portray in...
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... advance cash problems that it may be facing. Even though the failure to meet the $200,000 cash balance quote is only due to a few days, this may be an important indicator of cash issues that Riverside Bottling Company is facing. In fact, this may direct the attention to the providers of the loan towards such issue. Therefore if such creative accounting is applied, misleading information will be provided to the loan issuer, which will put in peril their investment.
b) There are two important ethical principles at stake in the case at hand. These encompass the principles of integrity and good faith, which go hand in hand under the ethical premise (Munro 2005, p 6). Professional Accountants and Businessman are required to be honest in their disclosures and avoid any prejudice in the information provided (Pendrill et al. 1996, p 16). In addition, once the loan was provided, an act of good faith commenced. This is a moral state of honesty, were false and misleading information is unacceptable.
Therefore if the assistant controller complies with Gena instructions and leaves the cash balance open at 30 June, he/she is infringing the aforesaid ethical principles, because he/she is not reporting faithfully the financial information pertinent to the cash balance. Such infringement may lead the assistant controller to be partially responsible if cash damages are suffered by the providers of the loan. c) In view of the ethical principles noted in part b of this case, the first alternative, which encompasses abiding with Gena instructions, is unacceptable and cannot be adopted.
Therefore, it is advisable that the cash balance is reported truly and fairly at $80,000 as it actually is. However, in light of the considerable risks for the company if the cash balance is not met, it also recommended that a note is disclosed in the financial report provided. Such note would explain that a customer has already sent a check of $150,000 to settle outstanding sales and it is just a matter of a few days before such check is settled resulting in the cash balance exceeding the $200,000 limit. If such course of action is undertaken the company will fully comply with the ethical principles outlined.
This would direct the lenders attention to the cash of the company and it is up to his discretion is remedial action is taken. If the company does not have any cash problems it will be sensible that no remedial action is undertaken in peril of Riverside Bottling Company.
Munro J. (2005). Code of Ethics for Professional Accountants, icaew. com (on line). Available from: http://www. icaew. com/index. cfm/route/135844/icaew_ga/pdf (Accessed 2nd July 2009). Pendrill D; Lewis R. (1996). Advanced Financial Accounting. Fifth Edition. Washington: Pitman Publishing.