A manufacturer of electric power transmission and distribution equipment more than doubled its EPS by changing depreciation methods. In justifying the change, management supported the change as follows: In comparison to direct competitors, the previous depreciation method was more conservative and thus had a negative impact on earnings.

Although difficult to prove, there is considerable evidence that accounting changes are made for reasons other than improved financial reporting. GAAP are flexible in the initial selection of accounting methods and in making subsequent changes. However, the accounting standards specifically require that only changes to preferable accounting methods be made.

Comment on the appropriateness of making accounting changes to fulfill financial reporting objectives, Consisder relevant ethical issues in your response. A basic framework to address ethical decision-making is provided here: Ethical Decision-making Steps

Ethics Discussion in Accounting:

There are many frameworks for the analysis of ethical dilemmas in Accounting. The basic steps include:

1. Identify the facts--who, what, where, when, and how.

2. Identify the ethical issue and the stakeholders such as shareholders, creditors, management, employees, potential investors, and the community.

3. Identify the values relevant to the situation such as confidentiality verses the right to know.

4. Specify the alternative courses of action.

5. Identify a course of action and the consequences of that action.