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1. What is the fundamental ethical issue in this situation? 2. How do the two suggestions of the company owner differ?

Ethical Issue 1-1 The board of directors of Xiaping Trading Company is meeting to discuss the past year’s results before releasing financial statements to the bank. The discussion includes this exchange:

Wai Lee, company owner: “This has not been a good year! Revenue is down and expenses are way up. If we are not careful, we will report a loss for the third year in a row. I can temporarily transfer some land that I own into the company’s name, and that will beef up our balance sheet. Brent, can you shave $500,000 from expenses? Then we can probably get the bank loan that we need.”

Brent Ray, company chief accountant: “Wai Lee, you are asking too much. Generally accepted accounting principles are designed to keep this sort of thing from happening.”

Requirements

1. What is the fundamental ethical issue in this situation?

2. How do the two suggestions of the company owner differ?

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