Altering the duration for depreciating leasehold improvements would have a significant effect on the financial performance of American Movieplex. However, it may not accurately reflect the true economic life of the assets. As per the information provided by Keene, it has been observed that trade publications indicate a standard depreciation period of 12 years (Wirtz, 2020). Using a more extended depreciation period, American Movieplex may be understating the cost of these improvements in the short term but overstating them in the long term.
This raises an ethical dilemma for American Movieplex. On the one hand, the company is responsible for maximizing shareholder value and reporting accurate financial statements. On the other hand, the company is responsible for being transparent with its financial information and not misleading its stakeholders. By choosing a more extended depreciation period that does not accurately reflect the true economic life of the assets, American Movieplex may need to be more transparent with its financial information (Wirtz, 2020). It is argued that the company prioritizes short-term gains over long-term accuracy.
If American Movieplex followed this suggestion, several parties would be affected. The primary stakeholders affected include shareholders, who would see a boost in the company’s net income, and investors, whom the company’s financial statements may mislead. The company’s management and employees, specifically the company controller Sarah Keene, may be affected by the decision as they would be responsible for reporting the financial information (Wirtz, 2020). American Movieplex’s reputation may be affected if the decision is considered unethical.
Reference
Wirtz, B. W. (2020). Business models and value creation in the movie market. Springer Texts in Business and Economics, 125–135. Web.