Ethical Dilemma in Financial Reporting

This assignment explores an ethical dilemma encountered by Sharon Rock, an assistant accountant at Brady Industrial Products. She discovers that the company owner incurred a large loan with Localtown Bank, requiring a minimum current assets to current liabilities ratio of 1.2:1. However, the ratio falls short due to the loan not being reflected as a current receivable. The assignment analyzes potential solutions, emphasizing the importance of ethical conduct and presenting true and fair financial statements. It highlights Sharon's responsibility to uphold accounting ethics and explore alternatives like selling inventory or negotiating with the bank.

Running head: FINANCIAL ACCOUNTING AND REPORTING
Financial Accounting and Reporting
Name of the Student:
Name of the University:
Author Note

1FINANCIAL ACCOUNTING AND REPORTING
Table of Contents
Answer to Question C......................................................................................................................2
References and Bibliography...........................................................................................................4

2FINANCIAL ACCOUNTING AND REPORTING
Answer to Question C
The issue that has been highlighted in the question is that the assistant accountant Sharon
Rock of Brady Industrial Products while, preparing the financial statements of the company
found out that a large loan had been incurred by the owner with Localtown Bank . Now, as a
part of the loan agreement the company had to maintain a ratio of current assets to current
liabilities of at least 1.2:1. However, the current assets (less inventories) of the company for the
financial year of 2018 stood at $1100000 and the current liabilities amounted to $1000000. This
indicated that the current assets (less inventories) to the current liabilities ratio stood at 1.1:1.
Therefore, the particular criteria that was presented by the bank was not met (Ahmad & Ahmed,
2017).
Now, in order to resolve this particular issue the solution that is recommended by the
business accountant is that the large loan ($120000) that has been forwarded by the business to
the owner could be reflected as a current receivable instead of non-current receivable as the loan
would be due in just fourteen months. This is where the accountant faces the ethical dilemma.
Sharon can listen to the business accountant and increase the amount of the current liabilities of
business by disclosing the loan amount as a current receivable in the balance sheet. This would
lead to the increase in the amount of the current assets thus, the new ratio would become as
follows:
New current assets - $(1100000 + 120000) - $1220000
Current liabilities - $1000000
Current assets to Current liabilities ratio – 1.22:1
Thus, the new current assets to current liabilities ration do conform to the criteria that is
presented by the Bank.
However, adopting such a technique would be unethical and would violate the code of
ethics that delivers the ethical conduct that has to be maintained while dealing in financial
accounting. Moreover, such a practice would be unethical on the grounds that the financial

3FINANCIAL ACCOUNTING AND REPORTING
statements prepared do not reflect the true and fair view of business thus, does not fulfill its
essential feature (Ghahramani, Soleymanpor & Fatahi, 2016).
Therefore, the actions that are available to Sharon that can be adopted to resolve the
dilemma she faces are as follows:
 Sharon can consider selling some part of the inventory so that the amount of current
assets increases
 Sharon can also obtain payments from some of the trade debtors for increasing the
current assets
 Sharon may look into the liabilities so that the liabilities incurred by business can be
effectively reduced
 Sharon can also consider recommending the company to surrender to the bank with the
true financial affairs and provide a proper justification for not meeting the loan criteria

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References and Bibliography
Ahmad, N. L., & Ahmed, H. (2017). The Acceptability and Impact of Sharia Foundation of
Islamic Ethics in Accounting Education. International Journal of Academic Research in
Business and Social Sciences, 7(2), 494-506.
Ghahramani, B., Soleymanpor, M., & Fatahi, R. (2016). ETHICS IN ACCOUNTING AND
AUDITING. IIOAB JOURNAL, 7, 293-299.
Ghose, K. S. (2015). Ethics in Managerial Accounting: Today's Challenges in USA. GSTF
Journal of Law and Social Sciences (JLSS), 4(2), 85.
Walsh, J. (2014). The Role of Ethics in a Future Accounting Career.