Communication Case Essay

Ethics Case 4-7 Income Statement Presentation of Unusual LossRequirementThe Cranor smoke suffered $10 gazillion in expenses linked to a product recall. The company had endured product recalls in the early(prenominal) and they still occur in the business. To disposition revenue from continuing operations, Jim Dietz, the controller, wishes to describe the $10 million as an marvelous loss, instead of an expense included in operating income. He states to the CEO that the company has never had a product recall of this size and that the corporation fixed the design flaw and improved t unity control. The drawback is, in order for Jim to categorize the loss as an extraordinary item, he must view that the losses in the companys financial statements are infrequent and unusual. He must also take on this cause is not likely to occur again in the future profitability. (Spiceland, Sepe, & Nelson, 2013, p. 188) The Journal of Accountancy states that extraordinary items are gains and losse s that are corporal, and result from events that are both unusual and infrequent. (Extraordinary Items Share Exclusive follow , 2013) These criteria must be considered in light of the environment in which the entity operates. There obviously is a commodious degree of subjectivity involved in the determination. The concepts of unusual and infrequent require judgment. In making these judgments, an controller should keep in mind the overall objective of the income statement. The key question is how the event relates to a steadfasts future profitability. If it is judged that the event, because of its unusual nature and infrequency of occurrence, is not likely to occur again, separate account as an extraordinary item is warranted.The ethical plight faced by Jim Dietz and the companys nous executive officer is that it appears from the facts of the case that it would be difficult for the company to come to the conclusion that a material product recall is not likely to occur again i n the foreseeable future. This type of event has occurred before and is common in the industry. While a subjective judgment, extraordinary treatment of the $10 million does not appear warranted. Is the obligation of Jim and the CEO to maximize income from continuing operations, the companys position on the stock market and management bonuses stronger than their obligation to fairly present business relationship information to the users of financial statements? If they conciliate to go with Jims suggestion, it would be misleading to the shareholders and creditors well-nigh the lost suffered. The misrepresenting of the stakeholders and money market would be terrible and display wickedness, while if the corporation is straightforward with the market and shareholders it will demonstrate moral values and show that the corporation is working in the outdo interest of the investors by not misleading them when it comes to losses. In hejira 231-2 it speaks about bearing a false report.The New International Version states Do not spread false reports. Do not help a guilty person by be a malicious witness. Do not follow the crowd in doing wrong. With Jim and the CEO being in a management position, they are required to perform many activities in running the entity in the best interest of stakeholders. Their duties include leading and directing an entity, including making important decisions concerning the acquisition, deployment and control of human financial, physical and nonphysical resources. They are supposed to take the charge for the preparation and fair presentation of the financial statements in harmony to the accounting policies. (Handbook of the Code of Ethics for Professional Accountants, 2013)I think the Cranor Company should include the loss in their net income and continue with the product recall. Including the loss in their net income will show honesty to its stakeholders. They whitethorn not receive a bonus, but it is better for them to be honest than risk the consequences of lying about the loss. Leviticus 1911 says, Do not steal. Do not lie. Do not deceive one another. (The postulate Study Bible, New International Version, 1994) By seeing the scripture we can detect how this relates to accounting ethics. Leviticus 1911 explains that that we are not to steal, and ultimately mislead others. When we associate this verse to this ethical dilemma it would describe Jim Dietz and the company chief executive officer of deceiving the stock market into thinking that the loss was rightfully an extraordinary item on income statement when in reality, they are misleading them to get a bonus.ReferencesThe Quest Study Bible, New International Version. (1994). Grand Rapids Zondervan Publishing House. Extraordinary Items Share Exclusive Company . (2013, family 3). Retrieved from Journal of Accountancy http//www.journalofaccountancy.com/Issues/2007/May/ExtraordinaryItemsShareExclusiveCompany.htm Handbook of the Code of Ethics for Professional Ac countants. (2013). New York International compact of Accountants. Spiceland, D., Sepe, J., & Nelson, M. (2013). Intermediate Accounting (7th ed.). New York McGraw-Hill/Irwin.