High School

It's no fun accepting a position for your dream job and then noticing red flags that make you question the company's culture. These are the thoughts of Donna Mason on January 18, 2022, as she prepares for a meeting with her accounting supervisor, Cheryl Miles.

Mason graduated summa cum laude from State University one year ago and recently passed the CPA Exam. She works as a staff accountant at Harrison Industries in Provo, Utah. Mason is one of three staff accountants. She reports to Cheryl Miles, who in turn reports to Kelly Lang, the chief accounting officer. Lang reports to the CEO, Ken Harrison, the third generation of owner-CEOs of the privately held company. Harrison is also the chair of the board of directors, which has five of nine independent members.

Mason’s concern arose on January 15, 2022, when Miles approached her and instructed her to record an accrual for unpaid severance payments of $5 million to be included in the December 31, 2021, financial statements. When questioned, Miles told Mason that the company had exceeded projected earnings in 2021 but anticipated a downturn in 2022. Mason was still concerned because the amount was unusually high. Miles then suggested another reason for the accrual, stating that the company planned to shut down the home appliance division in 2022 and that severance payments would be significant. This was the first Mason heard of any division shutdown, which she found odd since the company's operating income in all divisions had set record levels in fiscal year 2021. Moreover, the severance amounts are five times the annual payroll of the division.

The numbers below show the operating income levels and accruals for 2019 through 2021:

Answer :

1. The accrual of these expenses can be used to manage earnings by manipulating the timing of when expenses are recognized. 2. The Key parties are: Donna Mason, Cheryl Miles, Kelly Lang, and Ken Harrison. 3. Cheryl Miles provided rationalizations to Donna Mason in an attempt to justify the accrual for unpaid severance payments. 4. Mason should prioritize integrity, professional ethics, and the best interests of the company.

1. By recording a significant accrual for unpaid severance payments, the company can decrease its reported income for the current period (in this case, 2021) and potentially shift it to a future period (in this case, 2022). This can make the company's financial performance in 2021 appear weaker than it actually is, which may be beneficial for various reasons.

2. The key parties involved in this situation are Donna Mason, Cheryl Miles, Kelly Lang, and Ken Harrison. Donna Mason's ethical obligations are as follows:

a. Mason's primary obligation is to act in the best interests of the company. This means ensuring the accuracy and integrity of financial statements and disclosing any information that may materially affect those statements.

b. Mason also has an ethical obligation to be honest and maintain professional integrity. This includes questioning potentially questionable actions, reporting concerns to appropriate parties, and refusing to engage in unethical or illegal activities.

c. Mason should consider the potential impact on her own professional reputation and career if she complies with or ignores the request to record the accrual. She should act in a manner consistent with her personal and professional values.

3. These rationalizations include:

a. The company had exceeded projected earnings in 2021 but expected a downturn in 2022. This implies that the accrual is a precautionary measure to account for anticipated severance payments due to a division shutdown.

b. Miles indicated that it wasn't Mason's role to question orders and that doing so could lead to termination. This is an attempt to suppress Mason's concerns and discourage her from challenging the decision.

Mason should approach these rationalizations with skepticism, considering the lack of evidence for a planned shutdown and the significant discrepancy between the accrual amount and the division's annual payroll. These discrepancies raise red flags and suggest the potential for manipulation or unethical behavior.

4. Mason should take the following steps:

a. Document the request and the rationalizations provided by Cheryl Miles.

b. Consult with a trusted advisor or mentor outside the company for guidance and support.

c. Consider escalating the matter to higher-level management or the appropriate authority within the company. accrual amount and the division's annual payroll.

d. If internal channels do not yield a satisfactory resolution or if Mason fears retaliation, she may need to consider reporting her concerns to external parties, such as regulatory bodies or professional associations.

Ultimately, taking appropriate action, even if it is challenging, will help protect her own professional reputation and contribute to maintaining the company's ethical standards.

Learn more about operating income here: https://brainly.com/question/30400720

#SPJ11