ethics Head Donuts Inc. is a retailer of designer headphones, earphones, and han

Question

ethics

Head Donuts Inc. is a retailer of designer headphones, earphones, and hands-free audio devices. Polly Ester, the company president, is reviewing the company's financial statements after the close of the fiscal year and is troubled that earnings decreased by 10%. She shares her concerns with the company's chief accountant, Lucas Simmons, who points out that the drop in earnings was balanced bya 20% increase in cash flows, from operating activities. Polly is encouraged by the increase in cash flows from operating activities, but is worried that investors might miss this information because it is "buried" in the statement of cash flows. To make it easier for investors to find this information, she instructs Lucas to include an operating cash flow per share number on the face of the income statement, directly below earnings per share. While Lucas is concerned about using such an unconventional financial reporting tactic, he agrees to include the information on the income statement. Is Lucas behaving itn an ethical and professional manner? Explain your answer.

Explanation / Answer

under US GAAP, ASC 230 prohibits the Company from reporting cash flow per share. However, under IFRS, there is no such explicit prohibition of reporting cash flow per share. Accordingly a company may choose to voluntarily report cash flow per share. The compliance with the accounting standards is one of the ethics which the accountant needs to adhere to. In the extant case, since Lucas has agreed to include the information in the income statement which is prohibited, she will deemed to be not behaving in the ethical and professional manner.

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