Ethics in Accounting: Case Study of Linbarger Company's Dilemma

This assignment analyzes a case study involving Linbarger Company and ethical issues in accounting. The company faces a compliance issue due to failing to maintain a minimum cash balance as per a loan agreement. Lisa, the financial vice president, suggests manipulating the cash account to meet the requirement, violating principles of professional behavior and integrity. The analysis explores the consequences of both complying and not complying with this unethical instruction, including potential loan defaults, damage to the company's goodwill, and repercussions for employees. The solution suggests informing the insurance company about the shortfall and seeking a reasonable solution to maintain a faithful relationship. References to accounting ethics are provided.

Running head: ETHICS IN ACCOUNTING
Ethics in Accounting
Name of the Student
Name of the University
Author’s Note

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According to the provided case, it can be observed that Linbarger Company has the
accounting obligation to maintain a minimum balance of $200,000 or more in their cash account
due to the loan agreement with the insurance company. However, at June 30, the company does
not have the required balance in the cash account. In this context, it needs to be mentioned that
the company is facing compliance issue in accounting as they have failed to maintain the
required balance in their cash account for the loan from the insurance company (Thomas, 2012).
As per the provided case, it can be observed that the Lisa, the financial vice president of
Linbarger Company has advised to close the cash account for one more day despite of the end of
the month so that the check of $150,000 can be received to maintain the desired cash balance.
This action has breached some of the major ethics in accounting profession. As per the principle
of Professional Behavior, the accountants are required to comply with the rules and regulations
of accounting (heacademy.ac.uk, 2018). In addition, the principle of Integrity states that it is the
accounting obligation on the accountants to be straightforward and honest at the time of
providing the accounting services. However, in case of Linbarger Company, the action of Lisa
has violated these two major ethical principles of accounting (researchgate.net, 2018).
In this context, it needs to be mentioned that in case the assistant controller does not
follow the instruction of Lisa to open the book of cash account for one more day, the company
will be failed to maintain the required amount in the cash account; and thus, the company will be
considered as defaulter in the loan agreement. For this reason, Linbarger Company will be have
to face two consequences. First, due to be defaulter, the company will need to repay the total
loan amount at one time. Second, Linbarger Company will not be able to take any loan from that
insurance company. In both the cases, the goodwill of the company will be affected. Most

2ETHICS IN ACCOUNTING
importantly, the insurance company will have the power to close the business of Linbarger
Company in case they become defaulter (researchgate.net, 2018).
In case the assistant controller comply with the instruction of Lisa, the employees of both
Linbarger Company and the insurance company will be affected in the long run. Due to the
inability of Linbarger Company to maintain the required cash balance, they may not be able to
repay the loan of the insurance company. On the other hand, in case the insurance company can
know about this manipulation later, they can close down the operations of Linbarger Company.
Thus, both the companies will be affected (Horngren et al., 2012).
In this scenario, one ethical step for Linbarger Company is to inform the insurance
company about the lack of required balance in cash account. Moreover, they can also request the
insurance company to consider the pending check for fulfilling the required cash balance. In this
manner, Linbarger Company will be able to establish a faithful relation with the insurance
company.

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References
Ethics in Accounting. (2018). Heacademy.ac.uk. Retrieved 27 February 2018, from
https://www.heacademy.ac.uk/system/files/ethics_in_accounting_report.pdf
Ethics in Accounting. (2018). researchgate.net. Retrieved 27 February 2018, from
https://www.researchgate.net/profile/Paul_Jaijairam/publication/321167489_Ethics_in_A
ccounting/links/5a12cef4aca27287ce2a9b50/Ethics-in-Accounting.pdf
Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012). Financial
accounting. Pearson Higher Education AU.
Thomas, S. (2012). Ethics and accounting education. Issues in Accounting Education, 27(2),
399-418.