Description

Often when we are in the sanitized environment of a classroom it is easy to sincerely say that we would be ethical.  Unfortunately, ethical actions, in regard to accounting, can be a bit murkier in the real world. For example, what if your CFO wanted you to extend the useful life of existing capital equipment from five years to 7 years? Changing asset life does occur occasionally, but perhaps unknown to you, the CFO wants to do this because it will reduce depreciation expense each year for the next two years by $750,000. If you do not do this, everyone in the organization, from the guy in the mailroom to your friend the AR clerk (as well as yourself) will lose your bonus for the current year (and possibly the next two years).

You realize this does not impact the corporation’s cash flow since depreciation is a noncash transaction. GAAP doesn’t specifically prohibit the change, but allows the change occasionally for a good reason (but in this case getting the employee bonus is an insufficient reason). What do you do, and if you refuse to make this change on what ground do you base your position? Share a URL website with other students an explanation for an area you researched on the Internet.

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