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Ethics in finance

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

It depends on the purpose and method of the sales acceleration. If the firm benefits financially from the sales acceleration, then it
would be ethical. However, if the firm winds up worse off financially once the full effects of the sales acceleration occur, then the sales acceleration is potentially unethical. One also has to consider the purpose of the sales acceleration. The firm's objective is to benefit its current shareholders. However, short-term manipulations that allow securities transactions to occur at more favorable prices or ...

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