An accountant’s professional status or employment and compensation at her company may be in jeopardy if she resists pressure from her superior – the chief financial officer or controller – to capitalize (as an asset) certain operating expenses that the accountant knows with almost certainty the company should record as expenses (period costs). There may be serious implications for the accountant, the company, various financial statement users, and other stakeholders if she succumbs to, or resists, such pressure.

You may face such dilemmas during your career, whether in the role of an accountant or in any management role in which you are responsible for providing information or judgments that form the basis for amounts recognized in a business’ financial statements. Such judgments include a manager’s estimate of the excess or obsolete inventory produced or held by a division for which the manager is responsible. Such dilemmas often arise unexpectedly. Consequently, you should adopt in advance a strategy for coping with such dilemmas.

In the example above:

a. What is an accountant’s ethical responsibility (i.e., what results or outcomes is she obligated to achieve)?

b. How should she go about meeting this responsibility (i.e., what plan of action should she follow to achieve these outcomes?)