Question
How would you respond to this post? On occasion, management is faced with a dilemma, and they need to find a way to avoid large
How would you respond to this post?
On occasion, management is faced with a dilemma, and they need to find a way to avoid large swings in earnings. They must find a way to meet the profits, which were forecasted. The second part of their dilemma is finding a way to succeed without crossing ethical boundaries (Dugan & Taylor, 2016). Sometimes the answer given may not be considered wither right or wrong, but whether it achieved the goal of keeping shareholders happy. Even when following the required standards and principles, this action can be considered unethical. The borderline unethical perception because the information is misleading (Dugan & Taylor, 2016). The misleading direction depends on the intended outcome. The results are looked at carefully, depending on whether the information is used to increase compensation or deceive the stakeholders. Of course, there must also be a consideration if the outcome is simply to keep the earnings and spending at a level balance, to avoid any cause for concern (Dugan & Taylor, 2016). Earnings can be managed by following unethical practices such as reducing amounts in other areas to ensure they can meet forecasted share prices. An ethical practice will be if a business decides to spread out the purchases of large pieces of equipment to different quarters, so their spending does not drastically fluctuate. They are still purchasing what they intended and forecasted, just not all at once, taking a considerable hit to the spending budget. They are not actually manipulating numbers, just moving actual numbers differently in the flow (Dugan & Taylor, 2016). If appropriately done, shareholder wealth will not be affected because the long-term values do not change. The money is where it is supposed to be, and there are no risks of having to continue moving money around to hide fluctuations (Dugan & Taylor, 2016). Items added to the left-hand side of a balance sheet are considered investments, which take cash to purchase. The right-hand side of the balance sheet is income, and any purchases here increase overall projected earnings (Byrd, Hickman, & McPherson, 2013).
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