Accounting and Financial Reporting - inclusion & exclusion

Added on - Oct 2019

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Running head:ACCOUNTING AND FINANCIAL REPORTINGAccounting and Financial ReportingUniversity NameStudent NameAuthors’ Note
2ACCOUNTING AND FINANCIAL REPORTINGAnswer to Question 3:Main Ethical Issues Involved:Sharon Rock, working as the assistant accountant of the company Brady Industrial Productsreviewed the financial statements of the company and discussed the same with the same withrespective accountant of the company Tim O’Shea. Analysis of the financial statementsreflected the fact that the company had acquired a loan with the Localtown Bank. As per theterms of the loan contract, the company was supposed to maintain a minimum current ratio of(1.2:1). However, examination of the pertinent figures in the financial statements revealed thefact that the current assets (without inclusion of inventories) and current liabilities of the firmwas in actual fact standing at $1100000 and $1000000 respectively. This showed that thecurrent ratio of the firm Brady Industrial Products stood at (1100000/1000000=1.1) that islower than what is required as per the terms of the loan agreement. Sharon identified the issueand discussed on this specific matter with Tim O’Shea.However, Tim O’Shea decided to manipulate the financial data and falsely represent the samein the financial reports for meeting the terms of the loan agreement as there was dearth oftime to correct the figures. According to Tim, the company could otherwise sell some of theirinventories or else acquire some receivables to correct the current ratio of the firm. Instead,the accountant thought of representing the huge loan of amount $120000of the business thatis in actual non-current receivable as current receivable. Thus, this act can be identified as anethical issue that involves material misstatement. This can be stated as material misstatementas this misstatement of assets in the financial statement might affect the specific economicdecision of the user particularly the loan provider (bank) in this case (Mališ and Novak2016).The material misstatement is associated to false representation of financial information in the
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