What is the accounting problem that the Linbarger Company faces?
The accounting problem Linbarger Company is encountering is the inability to meet the set agreement of maintaining the minimum balance of $200000 in their account. The minimum amount is known as compensating balance. The compensating balance is usually used to offset a part of the lender’s cost when lending out money and is always a percentage of the loan (Staff, 2018) . The current amount is way below the required amount, and that is why the financial vice president is worried about the repercussions. The suggestion by the financial vice-president to keep the books open for another day is an attempt to make sure that the compensating balance’s threshold is met by using the Oconto Distributors check and is in violation of the free and fair concept of financial reporting.
What are the ethical considerations in this case? Provide a rationale for why these are ethical considerations.
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It is the obligation of the assistant controller in charge of the general ledger to influence the appropriate standard of ethical values so that the company is in line with regulations barring incoherent financial reporting. Therefore, in Linbarger Company’s scenario, the assistant controller in charge of the general ledger faces both professional and personal ethical considerations. The first ethical consideration is transparency. In accounting ethics, transparency is vital since it demonstrates truthfulness about the company’s current situation (Brennan, 2016) . As seen in the scenario, the company is struggling to meet the compensating balance as stipulated in the loan agreement. Lisa Infante, the financial vice president, is trying to conceal the fact by requesting that the ledger books be open for another day. Secondly, both personal and professional integrity is lacking. For one to exercise integrity, he or she needs to be straightforward and honest. The conduct by Lisa implies she is not exercising integrity by not disseminating the correct information to the insurance company. Another ethical consideration is objectivity. As an assistant controller in charge of the general ledger, one not should allow the influence of others to corrupt his professional judgments. Lisa’s suggestion is a breach of objectivity as a code of accounting ethics (Brennan, 2016) . Lastly, as professions, it is the mandate of both the financial vice president and the assistant controller in charge of the general ledger to comply with set laws and regulations. Therefore avoiding actions that may lead to disregarding the laws and regulations may discredit their professions.
What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?
There are significant negative impacts that may fall upon the assistant controller in charge of the general ledger, the financial vice president and Linbarger Company. As the assistant controller in charge of the general, if I don’t comply with Lisa Infante’s instructions, there is a great chance that she will fire me on the grounds of insubordination of her orders that may have saved the business from repercussions of not meeting loan agreement conditions. Lisa Infante will also suffer the consequences of explaining to the shareholders, stakeholders and the lenders as to why the company was unable to fulfil the loan agreement condition. She may lose her job on the grounds of incompetence. Lastly, Linbarger Company will also suffer simply because the Oconto Distributor’s check is in transit and will not have been received by June 30 th .
Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.
As the assistant controller in charge of the general ledger, if I do comply with Lisa Infante’s instructions, myself, Lisa Infante, the business and its employees will definitely be negatively impacted.
I will lose my job if I comply and get caught. Additionally, there is a possibility of being jailed for tampering with the ledger books. Secondly, Lisa Infante may also be fired if it is established that I was following my superior’s instructions though it is not a guarantee since she was not the one who was directly involved in the falsification of the Ledger books. Moreover, Linbarger Company will be shut down for falsifying records in order to fulfil the conditions agreed upon with the insurance company. If the company is shut down the employees who work there will lose their jobs.
What is one alternative that you could pursue in this scenario? Support your recommendations with the information you learned in this class.
When faced with such a scenario, as the assistant controller in charge of the general ledger, one is in a position to pursue alternative routes to resolve the issue. Normally, large accounts owned by big companies such as Linbarger Company are assigned handlers in the insurance company. Therefore, one should contact the person(s) in charge of the company’s account at the insurance company and elucidate the company’s state. At the same time, I would request the insurance company to grant Linbarger Company a grace period to comply with the loan’s agreement condition. Besides, if the company’s account has a good track record, then there is a good chance that my request will be granted. At the same time, it is good to re-read the loan agreement to determine whether there is a clause that offers a grace period. If no grace period exists and the company feels that the compensation balance limit is too high and is becoming strenuous to maintain then request for re-negotiation can be presented. The negotiation should focus on the reduction of the amount of compensation balance to be in line with the cash conversion cycle of the business.
References
Brennan, N. (2016). Are Ethics Relevant to the Practice of Professional Accounting?. Retrieved from http://www.cpaireland.ie/docs/default-source/media-and-publications/accountancy-plus/law-regulation/are-ethics-relevant-to-the-practice-of-professional-accounting.pdf?sfvrsn=2
Staff, M. (2018). What Is Restricted Cash on Financial Statements?. Retrieved from https://www.fool.com/knowledge-center/what-is-restricted-cash-on-financial-statements.aspx
