Case Scenario:
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."
Required to answer:
Problem 1. Who are the stakeholders involved in this decision?
Problem 2. What are the ethical issues?