Reference no: EM131960317

Problem - Olivia, Simple Company's Controller, is concerned that net income may be lower this year. In addition, for the past five years revenue has been declining and expenses have been stable, indicating a possible trend. The Company is in negotiations regarding a much needed, sizable bank loan. Simple Company is a closely held, wholesale company with 10 stockholders. Simple Company purchases exercise equipment from oversea suppliers and then resale to domestic companies. Mr. Bigshot, the CEO, holds 60% of the Company's stock. The Company has approximately 400 employees, which includes eight in the accounting department.

Olivia is convinced that expenses cannot be reduced again and the Company continue to maintain financial viability. She is concerned that, without the bank loan, upper-level management might resort to laying off personnel, including accounting staff. Olivia knows that there are accounting measures that would improve its financial ratios and make the company appear more profitable. These accounting measures are completely allowed under GAAP. In the past, applying proper GAAP procedures, the company focused on keeping its taxable income at a minimum. Given recent events, as described, Olivia believes that the Company could use proper GAAP procedures that emphasizes income and subsequently increase the chance of obtaining the bank loan.

Olivia believes this approach could save jobs, including hers.

Questions:

1. What ethical dilemma, if any, does Olivia face?

2. Given your answer to requirement 2, what should be done and why?