What is the accounting problem that the Linbarger Company faces?
The current accounting problem faced by Linbarger Company involves restricted cash, balance compensation, and accounting ethics. Restricted cash and compensation balances refers to money that is reserved for specific use and not available for immediate use by the company. The current case enmeshes minimum balances in a bank account as stipulated by a loan agreement. The cash account balance has dropped $160,000 below the required amount of $200,000. In an attempt to ‘solve’ the problem, Lisa Infante, the financial vice president instructs the assistant controller to keep the account books open for one additional day against accounting practices.
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What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.
The ethical consideration in this case is that Lisa is making the wrong decision for the right reasons. It is unprofessional for her, especially as the financial vice president, to default on accounting practices for purposes of saving the company from a potential close down. Lisa carries with her such a high level of trust in her position from every employees. Therefore, there is a high possibility that the assistant controller will concede to her instructions regardless of his or her ethical principles. The key confirmation that Lisa is aware of the unethical nature of her instructions is her explanations. Instead giving the assistant controller a direct order, she tries to explain herself, perhaps to share the blame (in case anything goes wrong) with the controller or, even worse, to make her a scapegoat.
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What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?
If the assistant controller does not follow the instruction, the potential outcome will be his or her insubordination. Defiance of authority or refusal to obey orders is punishable by various means, including dismissal. On the other hand, the assistant controller could be involved in ethical misconduct if he or she chooses to follow the orders. Indeed, the entire company could suffer if a court of law finds evidence of misconduct.
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Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.
The appropriate recommendation is to use a suitable communication channel to voice the issue to upper management. It is important to note that the vice president is responsible for the occurrence of this accounting problem. Hence, she should call the insurance company to ask for a concession instead of asking the controller to take risks. The vice president should always assess the accounting department to foresee future problems as the current case is already in a late stage. If Lisa would have made the insurance company aware earlier, the problem would not have escalated to the current level.
What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.
Ethical conduct should be a main concern in the accounting department because it holds the reputation of the entire firm when it comes to financial issues. Ethical behavior serves an individual and the organization better in the long run than risky unethical behavior (Gray, Owen, & Adams, 1996). Therefore, the assistant controller should prioritize his or her ethical record in order to maintain their job. He or she could proceed by offering a draft letter to the insurance company requesting for a concessions, offering the customer and asking them to run an online bank transfer, closing the books in accordance with accounting procedures and advising the vice present to explain the issue to the insurance company. The ultimate conclusion is that Linbarger Company should maintain a clean ethical track record at all costs, even if it means upsetting the power structure of the company.
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