Comprehensive Financial Report: Dave Schonhardt, President of Schonhardt Industries - Essay Sample

Abstract

A case is presented of Schonhardt industries President - Dave Schonhardt - who wishes to release a press statement regarding, among other things, the financial position of the firm. As the Companys chief accountant, the President had asked that I present him with the comprehensive financial report for the first quarter of the year.

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While I made the comprehensive analysis and reporting of the Companys actual financial position, I realize that the President - in consultation with the public relations director - exaggerated and omitted some financial figures. The President had reported the increases in the firms profitability, production volume, and sales. He, however, opted to avoid reporting on the debt status, acid-test ratio, the inventory, and the asset base of the firm. His avoidance of these deteriorated ratios thereby puts me in an ethical dilemma as the Companys chief of accounting.

Steven - the public relations officer - does well to ask me to proof-read the financial documents and test for their accuracy before the Presidents big speech. The document is, however, handed to me for fact-checking only a few hours before the Presidents press release. As a result, Im torn between sticking to my accounting ethics and integrity (to point out the misrepresentations) and allowing the press presentation to go on with the noted errors of omission.

This article thereby aims to - in consultation with available accounting ethics theories - determine the ethical concerns involved in the Presidents impending press release. It attempts to respond to such concerns, including whether the President acted unethically, my position in righting the potential wrong, and the involvement of the Public relations department in the financial reporting.

Introduction

Ethical integrity is an essential component in both the production and the reporting of a companys financial records. In addition to the professional codes of conduct, the accountant must also strive to keep the financial information reporting honest, moral, and observant to high levels of integrity (Reiter, 1996).

In the presented case, the accountant observes that Schonhardt Industries has been on a decline for a while. The Presidents attempt to revive the stakeholder interests involves a false reporting of the positives. President Dave Schonhardt - alongside the Companys public relations director - is hell-bent at presenting luring positive financial information to the stakeholders.

This article thereby analyses the potential downsides of such a biased presentation of facts to the stakeholders. The writer shall base the discussion on some of the theories around accounting ethics and business morality in this short intuitive study. While the research focuses on ethics and professional codes of conduct, the author shall also briefly analyze some of the potential grey areas in such ethical orientations.

Key Stakeholders

Schonhardt Industries stakeholders would ideally include:

• Consumers/clients
• Suppliers
• Banks and other creditors
• Shareholders
• The government
• Current and potential employees
• The General Public

Did the President Act Unethically?

It is first essential to consult Kohlbergs Cognitive Moral Development Theory (Dellaportas, 2006; Reiter, 1996) while trying to understand whether or not the President acted unethically. As per the theory, we postulate that the President of a company should be able to concurrently act in the pre-conventional, conventional, and post-conventional levels of moral development. In this scenario, we can thereby conclude that the President acted at a low moral level.

President Schonhardt allowed the potential impact of the deteriorated financial figures to compromise his ethical beliefs. He was thereby only left concerned about the punishing effects of the reporting the negative figures. He thereby only focused on pre-conventional, self-gratifying, and punishment-based moral values (Uysal, 2009). The ethic of justice and ethic of care moral compasses (as per Reiter, 1996) did not matter to the President while reporting the financial information. His main concern was to make the best case for the profitability of the firm to the public.

Kohlberg and Gilligan Views on Moral Development

Reiter (1996) presented the arguments from both Lawrence Kohlberg and Carol Gilligan to emphasize the need for a humanistic moral orientation in accounting. In Kohlbergs initial argument, the need for justice and logical thinking arose to ensure the leaders acted plausibly and with high levels of integrity as per the rational bounds of justice. His viewpoint was later determined as isolationist by some factions - led by Gilligan - who questioned the (lack of) involvement of the female gender in his studies.

Carol later conducted follow-up studies to incorporate the perspectives of women on morality as well as to critic the rigid justice-inclined moral development principles. She came up with the ethic of care principles to complement the rational male perspectives. She intended to depart from the abstract morality principles of Kohlberg and instead contextualize her ideas of moral reasoning. Her approach to ethics and morality thereby focused on building and maintaining relationships with others while also maintaining the sanity of the self (Reiter, 1996; Uysal, 2010).

Gilligan developed the ethic of care principles with women in mind as:

"Womens moral reasoning is driven by relationships and obligations to others known as the ''ethic of care.'' Male moral development is driven by the ''justice'' orientation" (Dellaportas, 2006; pg 397).

Later studies, however, continue to show no significant differences between moral reasoning levels between males and females (see Dellaportas, 2006). Both the ethic of justice and ethic of care principles are thereby applicable to all the people in the various disciplines studied by the two renowned authors. President Schonhardt, in structuring his speech to claim perfection of the Companys financial records, falsely goes against both the principles of justice and care.

With the fear of bad publicity clouding his judgment, the President worked with the public relations director to exaggerate the financial figures and commit the ethical error or omission. He would thereby deny the investors and other stakeholders the right to uncover the financial health of the firm fully. Whereas the President would present the beautiful financial information of the firms current profit worthy condition, he would also keep the stakeholders in the dark as to the debt and liability versus asset ratios. Errors of omission are significant ethical limitations of most firms.

Corporate Collapse and the Return of Accounting Ethics Research

In the 1980s and the early 2000s, several companies suffered severe financial debts and ultimate closure due to such misreporting of their financial facts (Dellaportas, 2006). Most of these companies did well to report their financial records to the public. However, they also fraudulently misrepresented their asset and debt statuses - showing themselves as more potent than they were. Revenue streams and masked profits showed the companies to be financially more potent than they otherwise were.

With the escalating corporate scandals, several quarters in the corporate sphere continued to raise concerns regarding the issue of ethics in accounting (Uysal, 2010; Waddock, 2005, cited in Uysal, 2010). It is, however, worth noting that accounting ethics research is still a relatively new area in scholarly interest and thereby remains a little chaotic as to its unquestionable principles. Most of the success of ethics in accounting still relies on other domains, such as the professional code of conduct and psychological and cognitive studies (Uysal, 2010). Such overreliance and borrowing from the other domains of study may limit the literature that is specific to accounting ethics.

Ethical Shortcomings of President Schonhardt and Their Potential Impacts

Misreporting of a companys financial information (especially with regards to the long-term assets and liabilities) may lead the creditors to act on false promises (Biznet, 2020). While such investments by creditors based on misinformation may appear to satisfy the Companys current financial and publicity needs, they may prove seriously detrimental to the Company in the long run. Vital among all the damaging effects of such unethical acts, the Company will end up losing the trust of the public and the investors when the flaws in their business model finally (inevitably) begin to seep to the public.

On a more categorical level of thinking about ethics, the actions of President Schonhardt could be summarized best by the quote provided in Biznet (2020), that states:

". If this single-minded pursuit of money at the expense of honesty, integrity, and kindness were a universal practice, then ethical principles would be largely irrelevant, and charity and generosity would be obsolete."

Some Gray Areas to the Utilitarian ethics

While the omission and relative exaggeration by the President can is on a black-and-white scale as totally unethical, certain circumstances might exonerate him. If for example, the Presidents decision to portray the Company from such a strong financial position was informed by market research that would eventually change the Companys returns and asset base, then he would only be acting in the interest of all the stakeholders by marketing the Company such highly (BizFluent, 2020).

The President might be inclined to make some tough judgment calls in order to garner interest from the investors if he believes that the potential moral benefits outweigh ethically questionable presentation of financial facts.

Who Should Talk to the President? Who Must Claim Responsibility?

As a professional accountant, with a deep awareness of the code of conduct and the cognitive moral values, the accountant (myself) must not stay silent on such a crucial ethical dilemma in accounting (Dellaportas, 2006; CFI, 2020). If anything, the fact that the President requested that the accountant should fact check the press document shows that the President believes in his professionalism.

As reported by Uysal (2010), most of the corporate players that ran out of business in the early 2000s relied heavily on the professional courtesy and the integrity of their accountants. Any misgivings by the accounts department sent the entire Company crumbing to its knee. For this reason, the auditor for Schonhardt Industries must be sure to advise the President accordingly. The accountant must point out the striking omissions that may end up misleading the investors and the general public. Driven by the professional code of conduct (BizFluent, 2020) and the post-conventional level of moral values (Uysal, 2010), I will stay honest with the President as regards to the financial as well as practical impacts of failing to disclose the full debt status and the asset to liability ratios. The accounts manager must, as such, exercise the contextualized care approach to the post-conventional level of the moral development theory.

Steven should also take responsibility for assisting the President in drafting a speech that shows a perfect state of the Company. As much as his task involves presenting the Company in the best way possible, it is also essential that he should have helped the President to make the speech highly practical. As one of the requirements of social responsibility for a company is to provide accurate information to the public, the public relations director is professionally inclined to advise the President on the potential consequences of disregarding the professional advice of the Companys exper...