Question

In June 2017, the board of directors for McElroy Enterprises Inc. authorized the sale of $10,000,000 of corporate bonds. Jennifer Grayson, treasurer for McElroy Enterprises Inc., is concerned about the date when the bonds are issued. The company really needs the cash, but she is worried that if the bonds are issued before the company’s year-end (December 31, 2017) the additional liability will have an adverse effect on a number of important ratios. In July, she explains to company president William McElroy that if they delay issuing the bonds until after December 31 the bonds will not affect the ratios until December 31, 2018. They will have to report the issuance as a subsequent event which requires only footnote disclosure. Grayson expects that with expected improved financial performance in 2018, ratios should be better.

Instructions

(a) What are the ethical issues involved?

Short answer

The ethical issue involved in the Profitability and integrity of financial reporting.

Step-by-step solution

Meaning of Accounting Ethics

Accounting ethics refers to adhering to particular norms and principles established by regulatory authorities that every individual involved in accounting should adhere to in order to prevent abuse of financial information or their managerial position.

Explaining the Ethical issues involved in the statements

The ethical issues involved are profitability, long-term versus short-term performance, and integrity of financial reporting.

Real profitability requires a long-term outlook. It is impossible to fully assess success in a quarter of a year; it takes longer for a product or service to find its market and gain traction against competitors, or for the results of a new corporate policy to become apparent.

Financial reporting and analysis are essential to the performance and well-being of any company or organization. For accurate reporting and analysis, the ethics of the company or organization comes into play.