Ethics, Responsibility, and Reporting As senior personnel officer of the World Time Corporation, this has not been one of your best days. World Time specializes in the manufacture, assembly, and distribution of international communication equipment. Competition from electronic communication through Internet and other direct electronic transfers has made the past several years very difficult for World Time. In fact,

World Time will have a serious cash shortage next year if no additional cash sources are found. The banks have already indicated that they will not lend World Time any more money. One of the reasons for the cash shortage is that World Time is diversifying by publishing international electronic mail directories, and the initial investments will use all the available cash. If this conversion of the business is successful, the company hopes to survive the changes in international communication.
What does all this have to do with personnel? The manufacturing work force has been reduced significantly in recent years, although it has been handled well through natural attrition and contract buy-outs. Now, however, one of the senior financial officers has suggested that the anticipated cash shortage next year could be made up by pulling some cash out of the pension fund set up for employees. The pension fund is held for World Time by a pension trustee. Because of higher-than-expected earnings on investments and the contract buy-outs of some senior employees, the trust fund assets exceed the current pension liability by about $15 million.
This is more than the projected $6 million cash shortage predicted for next year. The company attorney has given an opinion that using the excess cash from the pension fund is legal as long as World Time meets the actuarial requirements of the plan. You argue that it is not right and it will cause real morale problems in a work force that is already concerned about future job security. The company accountant says that the source of cash will have to be reported in the cash flow statement, although it probably can be buried by showing it as a negative adjustment, along with all the others that appear there, to cash flows from operations.

a. Should World Time use this source of cash?

b. Is the accountant correct in “hiding” the source by treating it as an adjustment to operating cash flows?

c. Would your answer to part a depend on how certain you were that World Time could recover and be successful as a publisher of international electronic mail directories?
Explain.