Financial Accounting Ethics Case Study - Essay Example

Despite the use of various defensive tactics such as poison put, white knight, lockup, crown jewel, shark repellent and golden parachute, it has not hampered the predominance of mergers and acquisitions. However, the process of mergers and acquisitions has been engulfed with various challenges that often threaten its validity (DePamphilis, 2007). Accountants and management act incongruously to report a better value of a company’s assets, liabilities and working capital so as to gain an advantage during the merging and acquisition process.

This paper shall comprehensively analyze a case study involving the Finance Manager at Home and Care Products, Lisa Michaels, and an accountant of Prestige Fragrance Company, Jeffrey Anderson, with an aim of establishing the ethical issues inherent in the case and advise Lisa on the best strategies to use in resolving and overcoming the unethicality. In the process of mergers and acquisition, accountants are supposed to use two methods; the purchase method and the pooling of interests. Under each method, assets, equity and working capital are differently valued but their valuation is standard and should be easily provable through provision of supporting documents.

Various ethical issues are inherent in the case study. Firstly, the accountants are violating the principles violated by FASB and are creating unnecessary sections within the financial records. Moreover, they are inflating sales and earnings, a clear violation of the conservatism concept, so that the parent company perceives the subsidiary as financially healthy, which is far from the reality (Bushman & Smith, 2001). Additionally, Jeffrey Anderson accumulated several assets in the “Other Assets” section in the balance sheet while he could not appropriately account for the assets.

The validity and nature of the assets