Like other financial actions, investments must be reported in the financial statements of publicly traded companies. These investments could reflect poorly on the company, even if they may be the best course of action. Does this raise any ethical concerns? If an investment will cost the company money, but will look good on paper, is making that investment ethical?
To help you think about how investments can raise ethical concerns, watch Always Accountable, episode 8 in this week’s Resources. In this video, MegaGlom has just announced via teleconference an acquisition bid that confuses their investors.
Read C15-11, “Ethics and Investments.” What ethical issues related to reporting of investments does this case present? Address the following questions in your response:
To which accounting rule is the president of the Davanzo Company referring when she states her intention to buy 20% of the shares of Company M? Explain that accounting principle and how it relates to this case.
What are the implications, if any, of the age, status, and profitability of Company M? How might these factors relate to the president’s decision to purchase stock in Company M? Explain your answer.
Which accounting guidance relates to this case? What financial reporting procedures would this guidance dictate?