For Wizard Kim - PP

Create a short PowerPoint presentation on Ethics Case 3

Use as many slides needed, there is no minimum or maximum required.

Ethics Case 3:

Shenandoah Furniture Company is a small publicly traded company. The Company pays annual bonuses based on a percentage of net income. Randolph Hundley, the controller of Shenandoah Furniture Company, has noticed that the Company holds equity securities in a variety of companies that were purchased as strategic investments. A few of these securities are currently valued above cost, but most are valued below cost at the current time. Hundley suggests to his assistant, Todd that they should treat the securities with unrealized gains as trading securities and those with unrealized losses should be treated differently—with the unrealized losses being reported in other comprehensive income.

Instructions

Answer the following questions:

• Will Hundley’s suggestion, improve the company’s net income (loss)?

• Is there anything unethical about Hundley’s suggestion?

• Who are the stakeholders that would be affected by this decision?

• What additional analysis can you draw from the information. Please think about what possibly could be going on within the scenario other than the issues you analyze for answering the questions. Do some additional critical thinking

Put Answers to the questions into a PowerPoint for presentation

Answers:

• Will Hundley’s suggestion, improve the company’s net income (loss)?

Hundley’s suggestion will improve the company’s net income because it will lead to recording of unrealized gains in the net income while the losses will be recorded in the OCI. Securities held for trading should recorded at their fair value in the balance, with their realized gains or losses on the income statement of the company. Therefore, whether they make a profit of a loss, they should be recorded as appropriate, and any other treatment violates the GAAP violations for the treatment of securities.

• Is there anything unethical about Hundley’s suggestion?

This is unethical because the decision aims at matching with the interests of the management. The action only aims at recording securities with an inherent gain as trading securities, which would increase net income and as a result management will earn more bonuses. Financial information should not demonstrate any alienation but should represent the fact about the company by being neutral. Therefore, the company should comply with the fair value provisions until such gains are realized.

• Who are the stakeholders that would be affected by this decision?

Some of the stakeholders affected include other managers who do not know what has happened, independent auditors, shareholders, and investors who wanted to save in the company.

• What additional analysis can you draw from the information. Please think about what possibly could be going on within the scenario other than the issues you analyze for answering the questions. Do some additional critical thinking."

The company’s treatment of securities with unrealized gains creates a false perception about the company. The management will conceal the reality of the company and make it more attractive to investors.