You are the controller for Pro Clean Services, a company that provides janitorial services to large commercial customers. The company has been very successful during its first two years of operations, but in order to expand its customer base, the company is in need of additional capital to be used for equipment purchases. The two brothers who started the business, Adam and Tim Olson, invested their life savings in the business, so they have contacted a local bank about securing a loan for $175,000.
The bank has asked for a set of financial statements, and Adam, being a business person, knows that the bank is going to be looking for a growth in earnings each year. Although the company's earnings have increased, Adam would like the past year to look better than it does now.
Adam stops by your office late in the afternoon on December 31 to find out when the financial statements will be ready. You explain that you still have to close out the end of the year but should have them ready by the end of the week. Adam tells you he is aware of a major contract Tim is working on that it will be signed on January 3 and asks you to delay the closing process a few days so the new contract can be included in this year's operating results. You attempt to explain to Adam that you cannot do that, but you can tell that he is not listening to you. Adam interrupts by saying, "I don't know why you accountants get so worked up over a few days. Let me just say that it would be in your best interest to include this contract in the current year's operating results." Adam leaves your office in a hurry, and you hear him mutter under his breath as he turns the corner, "That accountant-who does he think he is trying to tell me how to run my business?"
Requirements
1. What are the accounting issues related to Adam's request?
2. What is the ethical issue involved in this case?
3. What would be the appropriate course of action for you to take?