Case 1:

The board of directors of Exotic Corporation is meeting to discuss the past year's results before releasing financial statements to the public. The discussion includes this exchange:

Mark Reyes, company president: "Well, this has not been a good year! Revenue is down and expenses are up -'way up. If we don't do some fancy stepping, we'll report a loss for the third year in a row. 1 can temporarily transfer some land that I own into the company's name, and that will beef up our balance sheet. Garry,can you shave P500,000 from expenses? Then we can probably get the bank loan that we need."

Garry Santos, company chief accountant: "Mark, you are asking too much. Accounting principles are designed to keep this sort of thing from happening."

Required:

1. What is the fundamental ethical issue in this situation?

2. Discuss how the company president's proposals violate accounting principles