Stakeholders
A number of parties have stakes in this situation. The situation presents a financial decision which has a potential for causing a negative impact if it is known publicly and even if it is not known publicly, it may have financial consequences in the future.
Top management: In particular, the Chief Financial Officer (CFO) and the president are vulnerable to the Sarbanes-Oxley Act of 2002 (SOX) and furthermore, there are increased penalties for financial misconduct (Weygandt, Kimmel, & Kieso, 2009). The controller, Wayne Terrago, is also a stakeholder under this category.
Financial Community: This is the group that relies on the financial statements released by the company. The decision made is meant to hide the attention of the financial community from this expense.
The financial community has the stake of ensuring that a company’s financial position is presented in the right and accurate manner. In this category are the following parties:
Creditors: The decision made in this situation is meant to make the financial position of the company appear calm such that the bond offering process will not be jeopardized. This is a manipulation of a situation to make it appealing to another party.
The shareholders: Such practice as seen in this situation has the potential for negatively affecting the long term financial position of a company.
Since the shareholders are the owners, the decision made in this situation may affect them in one or another way.
The others include the company employees, the company board of directors, government regulators, and company suppliers.
Ethical Issues
The ethical issues represented in this case study are as follows:
Wrong application of General Accepted Accounting Principles (GAAP) in reporting the advertising costs on goods which are not moving at the expected rate.
The decision made in this situation is unethical as it leads to a creation of a misleading financial statement. This is done with an aim of ensuring that a forthcoming bond offering process is successful.
This generally is unethical as it represents a favourable financial position of the company but which is not true.
References
Grahame, S. (2005). Management Accounting – Decision Management. Financial Management, 1(2), 41.
Weygandt, J, Kimmel, P & Kieso, D. (2009). Managerial Accounting: Tools for Business Decision Making. Hoboken, NJ: John Willey & Sons.