Problem $1-11$ Ethical Issues

Silverado, Inc., is a closely held brokerage firm that has been very successful over the past five years, consistently providing most members of the top management group with $50$ percent bonuses. In addition, both the chief financial officer and the chief executive officer have received $100$ percent bonuses. Silverado expects this trend to continue.

Recently, the top management group of Silverado, which holds $40$ percent of the outstanding shares of common stock, has learned that a major corporation is interested in acquiring Silver$-$ado. Silverado's management is concerned that this corporation may make an attractive offer to the other shareholders and that management would be unable to prevent the takeover. If the acquisition occurs, this executive group is uncertain about continued employment in the new corporate structure. As a consequence, the management group is considering changes to several accounting policies and practices that, although not in accordance with generally accepted accounting principles, would make the company a less attractive acquisition. Management has told Kala Smith, Silverado's controller, to implement some of these changes. Kala has also been informed that Silverado's management does not intend to disclose these changes at once to anyone outside the immediate top management group.

Required:

Using the code of ethics for management accountants, evaluate the changes that Silverado's management is considering, and discuss the specific steps that Kala should take to resolve the situation. $($CMA adapted$*)$