The board of directors of Cloutier Inc. is meeting to discuss the past year’s results before releasing to the public. The discussion includes this exchange: Sue Cloutier, company president: “Well, this has not been a good year! Revenue is down and expenses are up-way up. If we don’t do some fancy stepping, we’ll report a loss for the third year in a row. I can temporarily transfer some land that I own into the company’s name, and that will beef up our balance sheet. Rob, can you shave $500,000 from expenses? Then we can probably get the bank loan that we need.”
Rob Samuels, company chief accountant: “Sue, you are asking too much. Generally accepted accounting principles are designed to keep this sort of thing from happening.”
Required
1. What is the fundamental ethical issue in this situation?
2. Discuss how Cloutier’s proposals violate generally accepted accounting principles. Identify the specific concept(s) or principle(s) involved.
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