Answer :
The accrual of these expenses could potentially be used to manage earnings. The key parties involved in this situation are Donna Mason, Cheryl Miles, Kelly Lang, Ken Harrison, and the company itself.
1. The accrual of these expenses could potentially be used to manage earnings. By recording a significant accrual for unpaid severance payments, the company can decrease its reported income for the current period, thereby improving its financial performance and meeting or exceeding projected earnings targets. This practice, known as earnings management, allows companies to manipulate their financial statements to present a more favorable picture to investors, lenders, or other stakeholders. However, if the accrual is not supported by actual events or is inflated beyond what is reasonable, it can be considered unethical and misleading.
2. The key parties involved in this situation are Donna Mason, Cheryl Miles, Kelly Lang, Ken Harrison, and the company itself. Mason's ethical obligations are to act in the best interest of the company and its stakeholders by ensuring the accuracy and integrity of the financial statements. She also must follow professional ethics and standards as a certified public accountant (CPA). At stake is the company's reputation, financial stability, and compliance with legal and ethical requirements. Mason needs to consider the potential consequences of her actions on her career and professional standing.
3. Miles provided rationalizations for the accrual, such as the company's exceeded projected earnings and the planned shutdown of the home appliance division. However, Mason's independent investigation revealed no evidence of a planned shutdown, and the division's income had consistently increased in recent years. These rationalizations should raise red flags for Mason and indicate that the accrual may not be justified. Mason should not simply accept Miles' explanations without proper evidence or documentation to support the accrual.
4. Mason should act ethically and responsibly by addressing her concerns through appropriate channels. She should consider discussing the issue with her mentor, Steve Hahn, who can provide guidance and support. If Mason still has doubts after consulting with Hahn, she should consider approaching higher-level authorities, such as Kelly Lang or Ken Harrison, to express her concerns and seek clarification. Mason needs to present her findings and evidence professionally and respectfully, highlighting her commitment to integrity and accurate financial reporting. Ultimately, Mason must make a decision based on her professional judgment and ethical principles, keeping in mind the potential impact on her career and the company's reputation.
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