Case: You are vice president of a small company that has been chartered by a group of about a dozen main investors. (It’s incorporated, but not publicly held.) The company does software development for other small businesses. Your boss, the president and CEO of the company, thinks that the company needs to expand and hire more software designers. (She thinks that there is a good opportunity to get qualified people since so many talented software engineers have been put out of work with the bursting of the “dot-com bubble.”) In addition, she thinks it would be a good idea to rent some more office space to house the new people, and to upgrade the company’s main computer system. These strike you as good ideas for growing the business, but there is one problem–the company has neither enough current profits or remaining investment capital to take on these new projects. Fortunately (well, maybe it is fortunate, maybe it is not), there is a meeting of the investors scheduled for next week. You are already in charge of making a presentation at this meeting in which you will discuss the previous quarter profits. Your boss now wants you to add to this presentation a discussion of why they ought to “fork over” (as she puts it) some more investment capital for the new expansion projects. You reply that this is likely to be tough sell, given that the profits this quarter have not been as good as had been hoped. Your boss looks over the profit report you have been preparing for the meeting of the investors. She notices what she says is a mistake. The contract with Econo-Tec that your company just signed includes not only some new software, but also an ongoing service contract for upgrades and debugging. Econo-Tec is paying $50,000 for the software. The service contract, which is to last for the next five years, is to be paid for on an annual basis-- $5000 a year. The income statement that you were going to show the investors records the income from the initial sale of the software in this past quarter’s profits. Accordingly, you have added this year’s payment to the quarterly profit report, for a total income from the Econo-Tech account of $55,000. Your boss tells you that this is a mistake. “Look, the contract was signed last quarter, and it includes a full five years of the service contract. That service contract is worth 5000 a year, for five years, for a total of 25,000. We signed the contract this quarter, so we earned that money this quarter. So for the Econo-Tech income, you should be reporting $75,000 to the investors. Geez, if you reported all of the service contracts this way, then it’s no wonder our profit report for last quarter looks so gloomy. Go back and change them before the meeting.” Is there anything ethically problematic with your boss’s instructions? If so, what? What’s the best way to handle this situation while staying out of ethically (and perhaps legally) dangerous territory?
Case:
You are vice president of a small company that has been chartered by a group of about a dozen main investors. (It’s incorporated, but not publicly held.) The company does software development for other small businesses. Your boss, the president and CEO of the company, thinks that the company needs to expand and hire more software designers. (She thinks that there is a good opportunity to get qualified people since so many talented software engineers have been put out of work with the bursting of the “dot-com bubble.”) In addition, she thinks it would be a good idea to rent some more office space to house the new people, and to upgrade the company’s main computer system. These strike you as good ideas for growing the business, but there is one problem–the company has neither enough current profits or remaining investment capital to take on these new projects. Fortunately (well, maybe it is fortunate, maybe it is not), there is a meeting of the investors scheduled for next week. You are already in charge of making a presentation at this meeting in which you will discuss the previous quarter profits. Your boss now wants you to add to this presentation a discussion of why they ought to “fork over” (as she puts it) some more investment capital for the new expansion projects. You reply that this is likely to be tough sell, given that the profits this quarter have not been as good as had been hoped. Your boss looks over the profit report you have been preparing for the meeting of the investors. She notices what she says is a mistake. The contract with Econo-Tec that your company just signed includes not only some new software, but also an ongoing service contract for upgrades and debugging. Econo-Tec is paying $50,000 for the software. The service contract, which is to last for the next five years, is to be paid for on an annual basis-- $5000 a year. The income statement that you were going to show the investors records the income from the initial sale of the software in this past quarter’s profits. Accordingly, you have added this year’s payment to the quarterly profit report, for a total income from the Econo-Tech account of $55,000. Your boss tells you that this is a mistake. “Look, the contract was signed last quarter, and it includes a full five years of the service contract. That service contract is worth 5000 a year, for five years, for a total of 25,000. We signed the contract this quarter, so we earned that money this quarter. So for the Econo-Tech income, you should be reporting $75,000 to the investors. Geez, if you reported all of the service contracts this way, then it’s no wonder our profit report for last quarter looks so gloomy. Go back and change them before the meeting.”
Is there anything ethically problematic with your boss’s instructions? If so, what?
What’s the best way to handle this situation while staying out of ethically (and perhaps legally) dangerous territory?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
