Ethics Case
Revenue Recognition Dilemma Amber Smith is the manager of a regional office for an insurance company that has a December 31 year-end. As regional manager, her compensation package includes a base salary, commissions, and a bonus when the region sells new policies in excess of its quota. Amber has been under enormous pressure lately, stemming largely from two factors. First, she is experiencing a mounting personal debt due to a family member's illness. Second, the region's sales of new insurance policies have dipped below the normal quota for the first time in years. You have been working with Amber for three years, and like everyone else in the office, you consider yourself lucky to work for such a supportive supervisor. You also feel great sympathy for her personal problems over the last few months and admire how she has coped with all the issues in his life. In your position as accountant for the regional office, you are only too aware of the drop in new policy sales and the impact this will have on the manager's bonus. While you are working on the year-end financial statements, Amber stops by your office. Amber asks you to change the manner in which you have accounted for a new property insurance policy for a large local business. A check for the premium, substantial in amount, came in the mail on December 23. The premium covers a period beginning on January 1. You deposited the check and correctly debited cash and credited an unearned revenue - insurance premium account. Amber says, "Hey, we have the money this year, so why not count the revenue this year. We have already received the money and it's in the bank? I never did understand why you accountants are so picky about these things anyway. I'd like you to correct the way you've recorded the transaction. I want you to credit the Insurance premium revenue account. And anyway, I've done favors for you in the past, and I am asking for such a small thing in return." With that she leaves your office. 1. Explanation of the specific ethical issues in the case, i.e., what are the ethical questions involved, what is the ethical dilemma? 2. Identify possible violations of the Conceptual Framework and Accounting Principles 3. Identification of all parties/stakeholders (individuals or organizations) affected and outcome of the ethical decision and why/how they are affected. 4. Statement of the alternatives available to the person(s) who must resolve the ethical dilemma and clear justification of the decision/path deemed the best (i.e., what you decide to do and why). Revenue Recognition Dilemma Amber Smith is the manager of a regional office for an insurance company that has a December 31 year-end. As regional manager, her compensation package includes a base salary, commissions, and a bonus when the region sells new policies in excess of its quota. Amber has been under enormous pressure lately, stemming largely from two factors. First, she is experiencing a mounting personal debt due to a family member's illness. Second, the region's sales of new insurance policies have dipped below the normal quota for the first time in years. You have been working with Amber for three years, and like everyone else in the office, you consider yourself lucky to work for such a supportive supervisor. You also feel great sympathy for her personal problems over the last few months and admire how she has coped with all the issues in his life. In your position as accountant for the regional office, you are only too aware of the drop in new policy sales and the impact this will have on the manager's bonus. While you are working on the year-end financial statements, Amber stops by your office. Amber asks you to change the manner in which you have accounted for a new property insurance policy for a large local business. A check for the premium, substantial in amount, came in the mail on December 23. The premium covers a period beginning on January 1. You deposited the check and correctly debited cash and credited an unearned revenue - insurance premium account. Amber says, "Hey, we have the money this year, so why not count the revenue this year. We have already received the money and it's in the bank? I never did understand why you accountants are so picky about these things anyway. I'd like you to correct the way you've recorded the transaction. I want you to credit the Insurance premium revenue account. And anyway, I've done favors for you in the past, and I am asking for such a small thing in return." With that she leaves your office. 1. Explanation of the specific ethical issues in the case, i.e., what are the ethical questions involved, what is the ethical dilemma? 2. Identify possible violations of the Conceptual Framework and Accounting Principles 3. Identification of all parties/stakeholders (individuals or organizations) affected and outcome of the ethical decision and why/how they are affected. 4. Statement of the alternatives available to the person(s) who must resolve the ethical dilemma and clear justification of the decision/path deemed the best (i.e., what you decide to do and why)
