What would you do in the following ethical dilemma: Your company is suffering declining sales of its principal product. The president instruct the controller to lengthen asset lives to reduce...

What would you do in the following ethical dilemma:

Your company is suffering declining sales of its principal product. The president instruct the controller to lengthen asset lives to reduce depreciation expense. A processing line of automated plastic extruding equipment purchased for 6 million, was originally estimated to have a useful life of 8 years and a salvage of 600 thousand. depreciation has been recorded  for 2 years on that basis. The president wants the estimated life changed to 12 years total. The controller hesitant to make the change, believing it is unethical. The president says "hey, the life is only an estimate , and Ive heard that our competition uses a 12-year life on their product equipment."

What would you do? knowing that it is illegal to change estimates under GAAP...

Asked on by barbiedot

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

It is impossible, I think, to say what we would do in a hypothetical circumstance.  There are so many variables, including things like what we thought of the company president and how badly we needed the job.  We must also consider our own attitudes towards this particular GAAP rule. 

That said, I would hope that I would act ethically.  I think that the first thing to do would be to get the president to reconsider.  I hope that I would point out to him that doing such a thing would be illegal.  I would try to point out (if this is true) that we could get in a lot of trouble if what we did ever came to light.  I would try to use those sorts of practical arguments on him rather than trying to argue about ethics.  I think that it would be easier to get him to back down by asking him to reconsider practical aspects of the plan than by, in essence, saying that he was being unethical and immoral. 

I hope that I would act ethically, but it is very hard to know when not in the actual situation.

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