Anne Distagne was the CEO of Linkage Construction
Inc., which served as the general contractor for the
construction of the air ducts for large shopping malls
and other buildings. She prided herself on being able
to manage her company effectively and in an orderly
manner. For years there had been a steady 22-25 percent
growth in sales, profits, and earnings per share,
which she wanted to continue because it facilitated
dealing with banks to raise expansion capital.
Unfortunately for Sue Fault, the chief financial officer,
the situation has changed.
"Sue, we've got a problem. You know my policy of
steady growth?well, we've done too well this year.
Our profit is too high: it's up to a 35 percent gain over
last year. What we've got to do is bring it down this
year and save a little for next year. Otherwise, it will
look like we're off our well-managed path. I will look
like I didn't have a handle on our activity. Who
knows, we may attract a takeover artist. Or we may
come up short on profit next year."
"What can we do to get back on track? I've heard we
could declare that some of our construction jobs are not
as far along as we originally thought, so we would only
have to include a lower percentage of expected profits
on each job in our profit this year. Also, let's take the
$124,000 in R&D costs we incurred to fabricate a more
flexible ducting system for jobs A305 and B244 out of the
job costs in inventory and expense them right away."
"Now listen, Sue, don't give me any static about
being a qualified accountant and subject to the rules
of your profession. You are employed by Linkage
Construction and I am your boss, so get on with it. Let
me know what the revised figures are as soon as possible."
1. Who are the stakeholders involved in this decision?
2. What are the ethical issues?
The solution contains the ethical issues involved if the company does not follow accounting standards and the stakeholders whose interests are affected by these issues.