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Potential ethical and legal issues and solutions

Atlantis Company sells computer components and plans on borrowing some money to expand. After reading a lot about earnings management, Andy, the owner of Atlantis, has decided that he should try to accelerate some sales to improve his financial statement ratios. He has called his best customers and asked them to make their usual January purchases by December 31. He told them he would allow them until the end of February to pay for the purchases, just as if they had made their purchases in January.

What do you think are the ethical implications of Andy's actions?

Which ratios will be improved by accelerating these sales?

Would you advise Andy to proceed with this plan? Why or why not?

Solution Preview

The credit extended by Andy to its best customers is unethical because one hand he has shortage of funds, for which he is planning to borrow funds and on the other hand, instead of tightening his credit policies to get more cash in circulation, he is offering longer credit periods. The implication of this policy will result in loosening of credit control systems and policies and will induce late payment habits among the customers. The customers will try to take ...

Solution Summary

The credit extended by Andy to its best customers is unethical.