Question: Jim Brock was an accountant with Hubbard
Jim Brock was an accountant with Hubbard Inc., a large corporation with stock that was publicly traded on the New York Stock Exchange. One of Jim’s duties was to manage the corporate reporting department, which was responsible for developing and issuing Hubbard’s annual report. At the end of 2017, Hubbard closed its accounting records and initial calculations indicated a very profitable year. In fact, the net income exceeded the amount that had been projected during the year by the financial analysts who followed Hubbard’s stock.
Jim was pleased with the company’s financial performance. In January 2018, he suggested that his father buy Hubbard’s stock because he was sure the stock price would increase when the company announced its 2017 results. Jim’s father followed that advice and bought a block of stock at $25 per share.
On February 15, 2018, Hubbard announced its 2017 results and issued the annual report. The company received favorable press coverage about its performance, and the stock price on the stock exchange increased to $32 per share.
Required:
Use the Ethical Decision Framework in Exhibit 1-9 to complete the following requirements:
Exhibit 1-9:
1. Recognize an ethical dilemma: What ethical dilemma(s) do you face?
2. Analyze the key elements in the situation:
a. Who may benefit from Jim’s action? Who may be harmed?
b. How are they likely to benefit or be harmed?
c. What rights or claims may be violated?
d. What specific interests are in conflict?
e. What are your responsibilities and obligations?
3. List alternatives and evaluate the impact of each on those affected: What are your options in dealing with the ethical dilemma(s) you identified in (1) above?
4. Select the best alternative: Among the alternatives, which one would you select?
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Times when an ethical dilemma is likely to occur are when a company is considering a decision about accounting methods or disclosures and when one of the following takes place: • There are conflicting accounting rules. • There are no GAAP to follow. Fraud or other questionable actions have occurred. Identification 1. Recognize an ethical dilemma. Examples of: Those who may benefit or be harmed- management, shareholders, potential investors, the auditor, creditors, employees. • Benefits-higher pay. promotion, increased status in the community. • Harm-loss of job, bankruptcy, customer's failure to pay debt. Rights/claims-payments to creditors, obligations to customers. • Conflicting interests-a member of the board of directors who is also a company employee, a manager whose bonus is based on sales. • Responsibilities-providing the most accurate information, reporting fraud. Analysis 2. Analyze the key elements in the situation. Among the alternatives, which provides: • The most useful and timely information to decision makers? The most faithful representation to decision makers? Information that most accurately represents what it claims to report? Information that is free from bias toward any certain result? 3. List alternatives and evaluate the impact of each on those affected. What is the likely impact of each alternative on those affected? Resolution 4. Select the best alternative. Among the alternatives, which provides decision makers with information that is the most relevant, most complete, most neutral, and most free from error?
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