Ethical Dilemma 5, Essay Example

The stakeholders in this case are the company’s President and CEO Albert Roland, the company’s board, the controller George Ellerby, the employees, and the stockholders. The President and the CEO is a stakeholder because his job depends upon whether the company meets the $1 million target in operating cash flows each year to pay dividends to the 10 stockholders. The company’s board is a stakeholder because it has the power to shape the organizational culture and in this case, the board places too much emphasis on performance which could cause the management to engage in unethical behavior. The controller is a stakeholder because he is responsible for preparing the financial statements and his actions also affect his relationship with his boss, Albert Roland. The employees are stakeholders because they are part of the organization and the management’s actions set precedent for them. The stockholders are stakeholders because the company’s operating cash flows determine their dividends payout.

The president’s action was unethical because he intentionally tried to manipulate the financial statement in order to save his job. He also influenced the controller in doing something which was professionally and unethically wrong. He also set a wrong example for his subordinates that it is ok to bend the rules for personal gain or meet a specific organizational target. The controller also acted in an unethical manner because he represented the transaction in a manner which hid the real nature of the accounting event. It was a bank loan but the controller changed it to accounts payable. Changing the nature of the accounting event may mislead investors because it would imply a lower financial leverage.

Someone who knows how to interpret accounting information may be able to detect the misclassification because bank loans usually involve interest payments while accounts payable usually don’t. In addition, payment of bank loans involve both principal and interest payments so the principal doesn’t decline over time by the full amount of payment. In case of accounts payable, the accounts payable balance may decline by the amount equal to the payment.