The ethical accountant is the manager and accountant for a small company that is privately owned by three individuals. He has always given the owners cash-based financial statements. The owners are not accountants and do not understand how financial statements are prepared. Recently, the business has experienced strong growth, and inventory, accounts receivable, and capital assets have become more significant company assets. The ethical accountant understands generally accepted accounting principles and knows that net income would be lower if he prepared accrual based financial statements. He is afraid, however, that if he gave the owners financial statements prepared on an accrual basis, they would think he is not managing the business well- they might even decide to fire him.
Instructions
Discuss the accounting and ethical issues.