Bill Gates, the manager of a large division of a major corporation, has significant input to...

 

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Bill Gates, the manager of a large division of a major corporation, has significant input to accounting policy for the division and has authority over all line decisions, including purchasing, maintenance, and capital expenditures. The manager has occupied the position for three years; the average time for promotion to the corporate staff level is five years. The manager has successfully endorsed capitalizing all post-acquisition costs, including improvements and general maintenance and repair. His justification is that all maintenance increases the useful life or productivity of assets relative to lower levels of such costs. In addition, he has recommended postponing many routine repairs on equipment used in manufacturing the division's product. Furthermore, he has resisted requests from lower managers to upgrade and expand facilities in several important areas. Divisions are evaluated on rate of return on investment (ROI), the ratio of divisional income to divisional investment. Ethics Case Example Two: The executive management team for a waste management firm was charged by the Securities and Exchange Commission for financial fraud. Among other things, management was found to have avoided recognition of depreciation expense on equipment by assigning inflated salvage values to the equipment and extending their useful lives. The updated salvage values and useful lives are unrepresentative of estimates chosen by most firms in the industry. Required Write a one-page report addressing the ethical factors relevant to the example above of financial reporting and disclosure. Comment on the propriety of the accounting chosen, GAAP flexibility, and the degree to which un- derlying economic effects are disclosed. Bill Gates, the manager of a large division of a major corporation, has significant input to accounting policy for the division and has authority over all line decisions, including purchasing, maintenance, and capital expenditures. The manager has occupied the position for three years; the average time for promotion to the corporate staff level is five years. The manager has successfully endorsed capitalizing all post-acquisition costs, including improvements and general maintenance and repair. His justification is that all maintenance increases the useful life or productivity of assets relative to lower levels of such costs. In addition, he has recommended postponing many routine repairs on equipment used in manufacturing the division's product. Furthermore, he has resisted requests from lower managers to upgrade and expand facilities in several important areas. Divisions are evaluated on rate of return on investment (ROI), the ratio of divisional income to divisional investment. Ethics Case Example Two: The executive management team for a waste management firm was charged by the Securities and Exchange Commission for financial fraud. Among other things, management was found to have avoided recognition of depreciation expense on equipment by assigning inflated salvage values to the equipment and extending their useful lives. The updated salvage values and useful lives are unrepresentative of estimates chosen by most firms in the industry. Required Write a one-page report addressing the ethical factors relevant to the example above of financial reporting and disclosure. Comment on the propriety of the accounting chosen, GAAP flexibility, and the degree to which un- derlying economic effects are disclosed.

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Ethical Factors in Financial Reporting and Disclosure The scenarios presented highlight crucial ethical considerations in financial reporting and disc... View the full answer