The motivation for Cubbies Cable Company in taking the position to expense all cable costs during the nine months has its basis on the principle of minimizing losses incurred in construction costs. In effect, when Cubbies Cable Company expensed its costs, they developed a factual costing, and thus, the issues regarding extended construction costs and interest diminished. Albrecht, Stice, and Stice (2007) explain that expensed costs represent costs that experience full utility and minimal future value.
Therefore, it is evident that the company wanted to ensure that the assets acquired during the construction process would serve the company under minimal expenditure in relation to its expensed value. By expensing all the cable costs for the nine months, the company based its motivation on minimizing the expenditure and increasing the revenues as reflected in the earnings of the year that ended on September 30, 2010.
Cubbies integrity as a company is questionable since it had an agreement not to capitalize any of the costs and interests incurred during the construction process. From the agreement, it is clear that the company violated the Financial Accounting Standard Number 51 of the Cable Television Companies, which requires capitalization of costs incurred during the prematurity period. In the explanation provided by Bragg (2006), the Financial Accounting Standard Number 51 of Cable Television Companies states that costs and interests incurred during the prematurity period should be subject to capitalization. As such, by stating that they would not capitalize the costs, the company violated the act, a factor that places their integrity on a flawed balance. The implication of the company’s failure to abide by the provisions of the act is a questionable integrity.
Fundamentally, Certified Public Accountants (CPAs) need to ‘horse trade’ or come to an agreement with the client on the proper Generally Accepted Accounting Principles (GAAP) to apply in a particular situation. By providing the requisite information on the accounting principles that prevail in a given situation, accountants help clients to make wise decisions, which result in loyalty and consumer satisfaction. In the case of Cubbies Cable Company, the client had minimal information, and thus, was dissatisfied in the end when the projected revenues increased over the expectations. According to the elucidation of Baxter and Davidson (2014), ‘horse trading’ helps CPAs to exercise their accounting principles in an ethical and realistic manner. With sufficient information on what principles will prevail in a respective situation, clients make the necessary arrangements that cushion them from unwarranted expenses.
The client and the company are the major stakeholders involved in the situation concerning Cubbies Cable Company. Since the situation or dispute concerns the client and the company, they are the victims affected by the issue, and thus, are the central stakeholders. The relevance of the client transpires from the fact that the client was involved in construction and expensing of the costs incurred during the prematurity period.
Consequently, the company is the recipient and acquirer of the assets such as cables, head ends, and drops constructed by the client. As a result, the two entities, the client and the company, form the stakeholders involved in the current dispute. Albrecht, Stice, and Stice (2007) assert that stakeholders are entities that experience the effects or gains advanced by an agreement that they impose in a given situation. Therefore, since the company and the client have experiences that regard the current issue of capitalization and expensing of construction costs, they are the main stakeholders.
Principally, the major ethical issues that should be of concern to Binks in deciding whether to go along with the company or take an alternative action include retention of his position as the company partner. Other ethical considerations include lose of client loyalty or resignation and lose of his position as a partner in the company. These major ethical issues are of concern when Binks makes a decision whether to side with the company or do the alternative. For instance, if Binks decides to abide by the company’s stand and supports the client, he will be violating the principles of GAAP on aspects of interest capitalization and expense on construction costs. However, he will retain his position and continue being the partner of the company as well as the person in charge of its accounting and audit activities.
The challenge regarding the decision to side with the company is lose of trust among clients because of the violation evident in the company as practiced by Binks. On the other hand, if Binks decides to persuade the company to do the alternative and engage in the correct capitalization procedures, he will gain trust from potential clients and eventually enjoy loyalty from them. Conversely, he stands losing the confidence of the company and his position as well as his partnership in the company. Apparently, these are among the major ethical issues that will be of concern to Binks when he makes his decision on the present dispute.
At this point if I were in Binks’ position, I would abide by the principles of accounting and persuade the company to follow the right course. The reason behind my decision is the fact that the benefits of abiding by the principles are long term and sustainable. However, the benefits of using the present agreements are short lived and unsustainable. Therefore, I would try persuading the company to engage in the right procedures on matters of capitalization and expenses of construction costs even if I would risk losing my position, partnership, and trust from the company.
References
Albrecht, W., Stice, E., & Stice, J. (2007). Financial accounting. Mason:Thomson/South-Western.
Baxter, W., & Davidson, S. (2014).Studies in Accounting. New York: Routledge.
Bragg, S. (2006). The ultimate accountants’ reference: Including GAAP, IRS & SECregulations, leases, and more. Hoboken: Wiley.