Ethical Dilemma: ethics and Financial Reporting
Beacon Systems develops computer software and licenses it to financial institutions. The firm records revenues from the software it has developed on a percentage of completion basis. For example, if a project is 50 percent complete, then 50 percent of the contracted revenue is recognized. Preliminary estimates for a $7 million project now in development are that the project is 75 percent complete. Estimates of completion are a matter of judgment, and management therefore feels justified in asking for a new report showing that the project is 90 percent complete. The change will enable senior managers to meet their financial goals for the year and thus receive substantial year-end bonuses. Do you think management's action is ethical? If you were the company controller and were asked to prepare the new report, would you do it? What action would you take?