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ATC-47 Ethical Dilemma - Terry Bailey Case Case Study

Category: Finance & Accounting Pages: 2 Type: Case Study Level: High School
ATC 6-7 Ethical Dilemma - Wilson Blowhard Case

a) By capitalizing a revenue item of expenditure, Wilson Blowhard is misrepresenting the facts. The income of the company would increase by the total amount of line cost charges less the amount of depreciation claimed for that year. Since the line cost charges was being expensed as and when incurred until the previous year, the income of this year compared to the previous years would be higher.
In the company's balance sheet, the capitalized cost would be shown on the asset side as a Fixed Asset so that it could be depreciated over the next few years. The Profit and Loss account balance would naturally be higher than it should have been.

b) The following Standards have been violated:
i. Section 52 - Article I - Responsibility:
The accountant of Mr. Blowhard should have exercised professional and moral judgment rather than doing what was asked to be done by Blowhard.
ii. Section 53 - Article II - Public Interest:
Mr. Blowhard's accountant should have kept the interest of those in mind who rely on the information provided by them in the financial statement.
iii. Section 55 - Article IV - Objectivity and Independence:
It is extremely important for a professional to maintain objectivity and be free of conflicts of interest in discharging professional responsibility. The accountant should have been independent and not surrendered to the pressure put by Mr. Blowhard.

c) Donald Cressey found three factors common to all cases of unethical conduct and they are present in this case too. They are as follows:
i. Existence of a non-sharable problem: Mr. Blowhard is planning on selling his company and hence wants to show good profits when there actually isn't a good profit. In general, information regarding sale of a