Sara Rankin is the assistant chief accountant at Hokey Company, a manufacturer o

Question

Sara Rankin is the assistant chief accountant at Hokey Company, a manufacturer of computer chips and cellular phones. The company presently has total sales of $20 million. It is the end of the first quarter. Sara is hurriedly trying to prepare a general ledger trial balance so that quarterly financial statements can be prepared and released to management and the regulatory agencies. The total credits on the trial balance exceed the debits by $1,000. In order to meet the 4 PM deadline, Sara decides to force the debits and credits into balance by adding the amount of the difference to the Equipment account. She chose Equipment because it is one of the larger account balances; percentage-wise, it will be the least misstated. Sara "plugs" the difference! She believes that the difference will not affect anyone's decisions. She wishes that she had another few days to find the error but realizes that the financial statements are already late.

Do you think Sara has handled the situation correctly and ethically? In your response consider the following: Who are the stakeholders in the situation? What are the ethical issues involved in the case? What are Sara's alternatives?

Explanation / Answer

Any mistatement is against the ethical accounting priciplas immaterial of the amount. All the transactions should be posted correctly to reflect true and fair view of Financials.

In present case, in case of difference of $1000, the same should be shown under the head "Suspense account" and a foot note should be given explaning the difference.

Eventhough, the amount is very minimal and will not effect the financials significant, the same shouldnot be added in any account as the nature of such amount is unkonwn. (it can be an expense as well).

The Stakeholders in thsi case are regulators and Shareholders.

Sara's Action was ethically incorrect and she should have posted the amount under the head "Suspense Account".

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