SMA Corporations controller, Nina Low, is concerned that net income may be lower this year. She is concerned that upper-level management might recommend cost reductions by laying off accounting staff, including herself. Nina knows that depreciation is a major expense for SMA. The company currently uses the same method for financial reporting as it uses for tax purposes, that is a declining balance method. Nina is considering changing to the straight-line method. Nina does not want to draw attention to the increase in net income that would result from switching depreciation methods. She thinks, Why dont I just increase the estimated useful lives and the residual values of the property, plant and equipment? They are only estimates anyway. These changes will decrease depreciation expense and increase income. I may be able to save my job and those of my staff. Nina calls her professional accounting bodys Ethics Hotline and reaches the Ethical Accountant for advice. Instructions As the Ethical Accountant providing advice to Nina, identify the objectives of depreciation, who the stake holders are in this situation, what disclosures are required, whether any ethical issues are involved, and recommend a course of action Nina should follow.

Refer to The importance of Depreciation; Depreciation Methods & Allocation, Qualitative Characteristics of Useful Information & Financial Reporting Issues, Usefulness of the Statement of Cash Flows to provide your answer

1. Objectives: what is the objectives?

2. Analysis: identify stakeholders; identify ethical issues; rational / validity of changing depreciation methods; ASPE / IFRS disclosure requirements for accounting changes.

3. Recommendation: your recommendation should include impact of depreciation on cash flow.