Good Question & Answer On Accounting

Stakeholders are the one that are affected by the business and financial decisions of the firm. Here, both the internal management and the external shareholders of the company, will be the stakeholders, as the malfeasance activity planned by Jerry Prior will negatively affect them. As for the external stakeholders, the shareholders of the company, taxing authorities and the local community, will be affected as Jerry’s action is an act of duping them by fabricating accounting figures. Similarly, the internal management and the other employees will also be affected as once this malfeasance act is revealed, they might witness bearish and tough times.
The ethical issue involved in the case is related to increase of the salvage value of the asset and its useful life without any justified reason; but rather to manipulate the financial earnings by reducing the depreciation expense. Therefore, if prior proceeds with the transaction in the said way, he will be violating professional code of ethical conduct and moreover, will also attract litigation charges, once such transaction is revealed to Security and Exchange Commission(SEC) and the company will fail to provide appropriate justification for increasing the useful life and salvage value. Hence, while Prior’s action might benefit him and the company in the short-run, but will turn deleterious for the company in the long-run.
Therefore, to avoid any such barbs and corporate stigma, Prior should only include appropriate depreciation expense based on real data and avoid including any erroneous information in the financial accounts of the company. Prior must understand that by following the unethical path, he may save his job for the time being, however, he is actually endowing threat to all the stakeholders of the company