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Ethical Considerations in Adjusting Entries

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128 views10 pages

Ethical Considerations in Adjusting Entries

Uploaded by

arunramasamy45
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ETHICAL CONSIDERATIONS IN ADJUSTING

ENTRIES
RUSSELL COMPANY
ABSTRACT

Thesis Statement:
• This presentation will analyze the ethical considerations surrounding
adjusting entries for revenues and expenses at Russell Company,
focusing on the implications of the president’s request and Zoe’s
actions, as well as their impact on the financial statements.
Overview:
• A detailed examination of the ethical dilemmas presented in the
case, the legality of the accounting entries, and the possible
consequences for the company’s stakeholders and financial integrity.
STAKEHOLDERS IN THE SITUATION

Russell Company Executives • Responsible for corporate strategy and financial


(President) performance.
• Responsible for accurate financial reporting and ethical
Zoe Baas (Controller)
compliance.
• Concerned with stock prices and company
Investors/Shareholders
performance.

Employees • Impacted by the company's financial stability.

• Oversee accounting practices to ensure compliance


Regulatory Authorities
with laws.
• Affected by the company's financial health and future
Customers
operations.
ETHICAL CONSIDERATIONS OF THE PRESIDENT’S REQUEST

 Pressure on Zoe: The president urges Zoe to


manipulate accounting practices for short-term
stock price benefit.
 Violation of Accounting Standards:
Encouraging deferrals of expenses and premature
accruals of revenue compromises the integrity of
financial statements.
 Misrepresentation: Stockholders and potential
investors may be misled by false representations
of the company’s financial health.
 Lack of Transparency: Encouraging Zoe to
manipulate the books undermines trust in the
company’s management and its financial
statements.
ETHICAL CONSIDERATIONS OF ZOE DATING THE ADJUSTING
ENTRIES DECEMBER 31

• Zoe's decision to record adjusting entries on January 17 but


Date Manipulation: backdate them to December 31 is a deliberate misrepresentation
of when the entries were made.

False Financial • This action violates the principle of timeliness in accounting,


which is crucial for accurate financial reporting.
Reporting:
Integrity of Financial • By altering the date, Zoe may create an inaccurate portrayal of
the company’s financial position.
Information:
• Such actions can be considered unethical and potentially illegal if
Legal and Ethical they mislead stakeholders about the financial standing of the
Breach company.
CAN ZOE ACCRUE REVENUES, DEFER EXPENSES, AND STILL
BE ETHICAL?

Accrual of Revenues:
• Zoe can ethically accrue revenue if it reflects an actual sale or transaction that
has occurred, but it must be accurately recorded in the correct period.
Deferral of Expenses:
• Expenses should only be deferred if they align with the accounting principles of
matching and proper timing. It’s not ethical to arbitrarily defer expenses to
achieve a financial benefit (Collier, 2015).
Potential Ethical Compromise
• If these actions are done to mislead stakeholders, they are ethically
questionable.
CAN ZOE’S ACCRUED REVENUES AND DEFERRED EXPENSES
BE ILLEGAL?

• Accruing revenues and deferring expenses in a manner


Potential Legal that is not based on actual transactions or sound
accounting principles can violate laws such as the
Violations: Sarbanes-Oxley Act.

• If these adjustments mislead investors or regulatory


Financial Fraud bodies, they could be considered fraudulent (Collier,
2015).

Legal • Similar cases of accounting fraud have led to severe


penalties, including legal action against corporate
Precedents officers.
WHO CAN DISCOVER ZOE’S ACCRUED REVENUES AND
DEFERRED EXPENSES?

Internal Auditors
• Can identify discrepancies in adjusting entries and question their validity.

External Auditors
• Independent auditors will scrutinize the financial statements and may uncover any unethical or
illegal accounting practices.
Regulatory Agencies
• Organizations like the SEC could investigate financial misreporting if it affects public disclosures or
stock market behavior.
Whistleblowers
• Employees or other stakeholders may report unethical behavior within the company.
CONCLUSION

The president’s request and Zoe’s actions raise serious


ethical concerns and may lead to legal consequences.
Ethical accounting practices are essential for
maintaining trust with stakeholders and ensuring the
company’s long-term viability.
Misleading financial reporting, whether through
backdating or improper accruals, is both unethical and
potentially illegal.
REFERENCES

 Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for


decision making. John Wiley & Sons.

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