Stakeholders in Eaton’s Situation
Eaton is facing a possible take-over and a looming reduction in its stock prices both of which could be devastating to the company and its stakeholders. Stakeholders are individuals who have interest in a company’s operations. They could be internal or external stakeholders. Internal stakeholders comprise managers, employees, and shareholders. Managers and employees fear for instability in their jobs in the event of take-over or dwindling revenues while shareholders worry about their money in the investment. External stakeholders like suppliers and competitors are faced with uncertainty when the company overhauls; it could be to their advantage or disadvantage.
Ethical Considerations of the President’s Request
A company should recognize earnings at the point of payment. This is because a company may deal with unreliable clients who may breach payment terms. Expenses, on the other hand, should be recorded at the point and period incurred. Deferred costs comprise expenditure paid in advance. It, therefore, means a reduction of expenses for the current period and a creation of an asset to the company’s balance sheet. This reduction implies a future benefit for the firm. The ethical issue that could arise with the president’s request is the time differences in recognizing revenue before actual payments and covering up for the supposed expenditures. Most companies conceal the deferred expenses by incorporating them in other ventures.
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Is it Ethical to Accrue Revenues and Defer Expenses?
It will not be ethical for Mark to accrue revenues and defer expenses since it will be contrary to the matching principle. The principle states that earnings and costs should be recognized when paid for and incurred respectively. Anything contrary to this will give a false implication on the actual financial position of the company. Accounting regulations require that every company should match expenses incurred and revenues earned within a particular period.
