Cubbies Cable

Topics: John Grisham, Asset, Compromise Pages: 2 (667 words) Published: September 18, 2012
Cubbies Cable
The ethical dilemma in the “Cubbies Cable” case is whether or not Binks should go along with the client's and firm's position in expensing all of its construction costs. Binks, the partner in charge of the audit, is aware his firm, Santos & Williams, operates with the philosophy that “you have to let the client win one somewhere along the line or you may lose that client.” His firm, and advisory partner, Rod Hondley, both agree with the client's position to expense all of its construction costs. This isn't the first time for Binks to have a dispute with its client. In the client's first dispute, I disagree with its position to not disclose the possibility of a loss. Cubbies argued “there was nothing to confirm the CPA firm’s position in that regard and the company would only disclose it if they lost the lawsuit.” But with contingent liabilities, losses that are probable should be disclosed as a liability, even if the loss is not estimable. In this dispute, the class-action lawsuit against Cubbies for age discrimination in its hiring practices was likely to have a verdict against Cubbies. Even though the potential loss was not estimable, a verdict against Cubbies was probable, therefore the contingent liability should have been disclosed. Although I agree with Cubbies' stance in capitalizing interest costs in the prematurity period, I disagree with its position against capitalizing construction costs. There could be several reasons for Cubbies' desire to expense all of its costs. They may want to maximize taxes for the year to minimize taxable income, or they may even want to distort earnings for the period to make the earnings seem higher in another period. Even though Cubbies agreed with the CPA firm in capitalizing all interest costs in the prematurity period, it is not in accordance with GAAP to not capitalize the construction costs. The CPA firm's integrity would inevitably be compromised if they chose to support Cubbies' position in...
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