While it is a goal of standard setters to develop accounting standards that will provide comparability across organizations and over time, there are instances when professional judgement must be used in determining the correct amount of disclosure. Assume the role of the ethical accountant working as an advisor for ABC Inc., a toy manufacturer.
ABC Inc. has received reports that a particular toy may have led to injuries for the users. At this point in time the information available is inconclusive as to whether the toy actually caused the injury or whether it was a result of user error.
Management must now decide whether to communicate the potential malfunction to the public or to wait for additional information.
Instructions
(a) Describe the reasons for management to await additional information before making a public statement about the safety of the toy.
(b) Describe the reasons management might communicate the potential defect to the public immediately.
(c) In your role as the ethical accountant, what course of action would you recommend and why?