To capitalize or to expense

Susan Smith is the controller of a public company. She just completed a meeting with her superior, Michael Murphy, who is the CFO of the company. Murphy tried to convince Smith to go along with his proposal to combine 12 expenditures for repair and maintenance of a plant asset into one amount ($1 million). Each of the expenditures is less than $100,000, the cutoff point for capitalizing expenditures as an asset and depreciating it over the useful life. Smith asked for time to think about the matter. As the controller and chief accounting officer of the company, Smith knows its her responsibility to decide how to record the expenditures. She knows that the $1 million amount is material to earnings and the rules in accounting require expensing of each individual item, not capitalization. However, she is under a great deal of pressure to go along with capitalization to boost earnings and meet financial analysts earnings expectations, and to provide for a bonus to top management including herself. Her job may be at stake, and she does not want to disappoint her boss.

Answer the following questions in paragraph format (no outlines). Answer the questions in the order provided. You must show understanding of relevant accounting concepts under the circumstances. Your writing must use language that communicates meaning to readers with clarity, fluency, and free or errors.

Assume both Smith and Murphy hold the CPA and CMA designations. (you can refer to the Code of Conducts by AICPA and IMA)

What are the loyalty obligations of both parties in this case?

Assume that you were in Susan Smiths position. What would motivate you to speak up and act or to stay silent? Would it make a difference if Murphy promised this was a one-time request?

What would you do and why?