• Most companies have a "capitalization policy," which requires the purchase of fixed assets over a certain dollar amount to be capitalized and depreciated. Abrams Company has a policy in place that requires the capitalization of items over $500. The Accounting Manager has decided to "expense" a piece of equipment costing $1,000 because it will give his company an immediate tax benefit and help with the company's cash flow. Further, he expects to hide the expenditure in manufacturing supplies so, upon any tax audit, the amount will not be easily discovered.
• Is it ethical to allow exceptions to a company policy if the exceptions create tax advantages for a company? Use the scenario above as an example. Consider the amount of the transaction as well as the method by which the transaction is recorded.