Die Hard Company: Can Becky accrue revenues, defer expenses and still be ethical?
Die Hard Company is a pesticide manufacturer. Its sales declined greatly this year
due to the passage of legislation outlawing the sale of several of Die Hard’s chemical pesticides.
In the coming year, Die Hard will have environmentally safe and competitive chemicals to replace
these discontinued products. Sales in the next year are expected to greatly exceed any
prior year’s. The decline in sales and profits appears to be a one-year aberration. But even so,
the company president fears a large dip in the current year’s profits. He believes that such a dip
could cause a significant drop in the market price of Die Hard’s stock and make the company
a takeover target.
To avoid this possibility, the company president calls in Becky Freeman, controller, to discuss
this period’s year-end adjusting entries. He urges her to accrue every possible revenue and
to defer as many expenses as possible. He says to Becky, “We need the revenues this year, and
next year can easily absorb expenses deferred from this year. We can’t let our stock price be
hammered down!” Becky didn’t get around to recording the adjusting entries until January 17,
but she dated the entries December 31 as if they were recorded then. Becky also made every
effort to comply with the president’s request.
(a) Who are the stakeholders in this situation?
(b) What are the ethical considerations of (1) the president’s request and (2) Becky’s dating
the adjusting entries December 31?
(c) Can Becky accrue revenues and defer expenses and still be ethical?