You are the accountant for a division of a company that is constructing a buildi

Question

You are the accountant for a division of a company that is constructing a building for its own use. It is January 2011, and you are working on closing the books for 2010. The CEO of the division stops by your office and says, “I have some question about our building. Although we started the construction at the beginning of June this year, we started planning it at the beginning of the previous year. I believe that we can capitalize interest since then. Check to see if we did capitalize some in 2009. If not, we can take it out of this year’s expense and get a double dose. Also, I want you to add lots of overhead to the cost of the building so we can increase our profit for this year. For example, you spent quite a bit of time on the project. So perhaps we could add 1/12 of your salary to the cost of the building. You get the idea?” When the CEO leaves you check the files and find a letter to an architect dated January 2, 2009. There are numerous subsequent letters to and from the architect.

1. Discussion Board requirement: From financial reporting and ethical perspectives, how would you reply to the CEO? Include a discussion of the reasoning you used to support your stand on the ethical issues.

Explanation / Answer

1. Discussion Board requirement: From financial reporting and ethical perspectives, how would you reply to the CEO? Include a discussion of the reasoning you used to support your stand on the ethical issues.

First, the CEO is clearly lying when he says, "I have some question about our building. Although we started the construction at the beginning of June this year, we started planning it at the beginning of the previous year," since planning actually started well into 2009 - not, as he indicates, 2010.

Next, he says, "I want you to add lots of overhead to the cost of the building so we can increase our profit for this year. For example, you spent quite a bit of time on the project. So perhaps we could add 1/12 of your salary to the cost of the building. You get the idea?" He's basically proposing that your (or, my) salary be cut to his company's benefit - and ergo, his salary's benefit.

He's clearly acting in an unethical manner by suggesting that an employee (1) lie and (2) take cuts from his own salary to fund a business improvement project. Since the CEO is the "ultimate" representative of the company's ethics, a viable course of action is to quit and report his recommendations - along with your findings - to the proper authorities. An alternative is to speak with other employees about the matter; it may be possible to have the CEO fired.

Overall, though, I would stand firm and refuse to put his suggestions into action.

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