Ethics in Accounting

 Linbarger Company is facing a cash flow problem arising from offering too much credit to customers and whose payment is late.  Giving too much credit may get the company in problems relating to failure to maintain the agreed level of cash balance (Porter & Norton, 2014). This means that too much credit to customers or the failure of customers to pay their debts on time makes the firm not to maintain the agreed $200,000 or more. The late payment by customers is indicated when the firm has to reach out to Oconto Distributors, one of the customers who agreed to send a $150,000 check. Late payment is a problem to a business because it strains the cash flow. In addition, there is a likelihood of the debt going bad of customers default payment.

Integrity is an ethical issue that arises from this case, and this involves choosing to be straight forward with the stakeholders such as the insurance company which is a creditor to Linbarger Company.  As the accountant one has to choose between providing cash receipts book with the updated actual balance of $ 80,000 or considering delaying providing the book after the $150,000 cheque has matured. Failure to submit the actual cash balance when it is duly required is tantamount to obscuring information that is required to be included in the accounting book. In case the promised cheque bounces, so that the $ 150,000 cash is not received, the information provided by the accountant will contrast to the reality. Integrity is an essential and basic element in accounting profession and accountants are required to be honest and forthright when presenting financial information to stakeholders (Porter & Norton, 2014).  This is because investors need to be confident that the financial information maintained is straightforward, honest and observing the required standards. Maintaining the cash book open as requested by Lisa so as to overstate the available cash balance equals to being fraudulent and hence , an unethical action. Such a behavior should not be discouraged by the Vice president and her instructions should not be followed.

Failure to follow Lisa’s instruction to keep the cash receipt book open may results to lender’s taking legal actions on the firm. This would involve the lender exercise of the related contractual remedies that are stipulated in the agreement. The lender may also pursue a resolution through a court order leading to closure of the firm on the basis of such loan defaults.  Other actions that the lender may take involve declining offering more loans in future and charging a default interest rate on the firm. The loan agreement is a contract, and its default may make the lender to accelerate the repayment obligations of the firm. The default on the set conditions on the loan agreement destroys the business relationship between the company and the lender, so that the future loan facilities cannot be provided (O'Regan, 2015). The legal actions that the lender may take upon the failure to honor the conditions may dent the image of the business in terms of credit worthiness.

The accountant is the one likely to suffer more of the negative effects in case he complies with the instructions issued by Lisa Infante. If the accountant complies by falsifying on June 30 balance of the cash book, he will be sacrificing his integrity as a professional. This means that he can be prosecuted for preparing and presenting a report that is fraudulent to the uses. The insurance company may choose to review the terms of the agreement with the firm, which may save the Linbarger Company from dissolution. However, the accountant may never have an opportunity to salvage his professional image since he is already labeled as lack independence. Independence requires that accountants should not compromise on their integrity or their professional judgment due to influence from other people. Failure to maintain ones independence may results to failure to provide true honest financial information to the users and this dent the trust the clients have with the accountant (O'Regan, 2015).

Following the request made by the Vice president would mean that mistakes could be made in misrepresenting the cash balance, and this is unethical. The best alternative is to advice Lisa about the need to maintain integrity while stating the actual balance in the books. Holding the cash receipt book open would lead to severe consequences to the organization and this may destroy its credit worthiness. The alternative would involve sensitizing the vice-president on the need to prepare a report that is timely and accurate so that to safeguard the relationship between the two firms and avoiding any loss of trust. The vice-president can then have a discussion with the insurance company about the situation, and explain the cash balance problem is temporary and would be corrected ones the cash is collected from debtors. Honest is an important policy that ensures that users of financial information have confidence with what is prepared (O'Regan, 2015).

 

 Reference

O'Regan, P. (2015). Financial Information Analysis: The Role of Accounting Information in Modern Society. Routledge. 466-469

 

Porter, G. A., & Norton, C. L. (2014). Financial accounting: The impact on decision makers. 57