accounting
Identify the problem.
The WGN Company has a bonus arrangement that grants the financial vice president and other executives a $15,000 bonus if the net income exceeds the previous year’s by $1,000,000. Nothing that the current financial statements report an increase of $950,000 in the net income, Vice President Jack Brickhouse asks Louise Boudreau, the controller, to reduce the estimate of warranty expense by $60,000. The present estimate of warranty expense is $500,000 and is known by both Brickhouse and Boudreau to be a fairly "soft" amount.
Identify possible causes of action.
-Brickhouse is acting unethically. His action serves only his self-interest, self review and has no clear basis in proper accounting procedures, so ignoring the familiarity with brickhouse ,the controller, Louise Boudreau, should not manipulate net income in view of any compensation plan the company may have.He must comply with relevant laws and regulations and not assist others to act illegally or unethically. He must not do anything that may discredit him or the accountancy profession.
The economic interests of management and the potential for their bonus plans conflict with the shareholder’s interest that financial statements clearly and accurately reflect net income. If the warranty expense is reduced and the original estimate turns out to be accurate, the shareholders are harmed because the company pays a bonus the managers did not earn.
-As vicepresident the most ethical thing to do is to accept the results and try to figure out what happened or what the company is missing out.Ensure that you have sufficient information. This would include establishing the basis of valuation of the company’s income,investigating the system for counting and evaluating income, and discussing with the warehouse manager the reason why the net income is not increasing as wished. You may also need to discuss the realisable value with someone else, such as the sales director.
Once you are sure of
The WGN Company has a bonus arrangement that grants the financial vice president and other executives a $15,000 bonus if the net income exceeds the previous year’s by $1,000,000. Nothing that the current financial statements report an increase of $950,000 in the net income, Vice President Jack Brickhouse asks Louise Boudreau, the controller, to reduce the estimate of warranty expense by $60,000. The present estimate of warranty expense is $500,000 and is known by both Brickhouse and Boudreau to be a fairly "soft" amount.
Identify possible causes of action.
-Brickhouse is acting unethically. His action serves only his self-interest, self review and has no clear basis in proper accounting procedures, so ignoring the familiarity with brickhouse ,the controller, Louise Boudreau, should not manipulate net income in view of any compensation plan the company may have.He must comply with relevant laws and regulations and not assist others to act illegally or unethically. He must not do anything that may discredit him or the accountancy profession.
The economic interests of management and the potential for their bonus plans conflict with the shareholder’s interest that financial statements clearly and accurately reflect net income. If the warranty expense is reduced and the original estimate turns out to be accurate, the shareholders are harmed because the company pays a bonus the managers did not earn.
-As vicepresident the most ethical thing to do is to accept the results and try to figure out what happened or what the company is missing out.Ensure that you have sufficient information. This would include establishing the basis of valuation of the company’s income,investigating the system for counting and evaluating income, and discussing with the warehouse manager the reason why the net income is not increasing as wished. You may also need to discuss the realisable value with someone else, such as the sales director.
Once you are sure of