Business Ethics Case Study, Accounting - Essay Example

The general manager identified the current hazardous waste disposal produce as an area in which the company could save money. Mr. Hendricks identified equipment that would give the company the capacity to recycle the solvents. He consulted two industry experts to estimate the cost savings the company would obtain by acquiring the equipment. The experts disagreed on the amount of savings to the company. The lower estimate of cost savings would increase the net income of the company, but the decrease its return on investment due to the high acquisition cost.

The greater cost saving estimate increased both the net income and return on investment of Tie Chemicals. Mr. Hendricks is responsible for presenting the proposal to the general manager for approval. He must follow the generally accepted accounting principles (GAAP) concerning this area of accounting. A key GAAP concerning estimates is the principle of conservatism. This principles states that accountants are required in their work to make estimates and evaluation, deliver opinions, and selecting appropriate procedures.

When they are realizing this type of work they must do without neither overstating nor understating the affairs of the business or the results of operation. “If a situation arises in which there are two acceptable alternatives for reporting an item, conservatism directs an accountant to choose the alternative that will result in less net income or less asset amount” (AccountingCoach). The cost accountant is concerned with all the stakeholders involved. He wants to do what is right for the environment, thus approval of the project would help the environment.

The stockholders and the board of directors want to receive the maximum profits and return on investment. There is a direct relationship between the manager’s year end bonuses and the net income of the company. There is decision to be made