Maggie M iller owns Miller Construction Co. The company maintains accounting records for the purposes of exercising control over its construction activities and meeting its reporting obligations regarding payrolls and income tax returns. As it has no other financial reporting obligations, Miller does not prepare formal financial statements.
The company owns land and several other assets with current market values well in excess of their historical costs. Maggie Miller directs the company's accountant, Max O'Shaughnessey, to prepare a balance sheet in which assets are shown at estimated market values. Miller says this type of balance sheet will give her a better understanding of where the business stands. She also thinks it will be useful in obtaining bank loans, as loan applications always ask for the estimated market values of real estate owned.
Instructions
a. Would the financial statements requested by Maggie Miller be in conformity with generally accepted accounting principles?
b. Is Miller Construction under any legal or ethical obligation to prepare financial statements that do conform to generally accepted accounting principles?
c. Discuss any ethical issues that O'Shaughnessey should consider with respect to Miller's request.