Steve Is Quickly Moving Up in the Accounting Department of RAC

question 58

Essay

Steve is quickly moving up in the accounting department of RAC Inc. It is year-end; he has just received news that the estimates of the estimated useful life and savage values were wrong and must be changed. Of course, that changes the depreciation expense and accumulated depreciation. Steve calls his wife to explain why he will be late again. Now is he is pondering a comment his wife made. She said "I'm no accountant; but after four years, you would think that the company could get it right how its estimates affect expenses and the relevant accounts." How might Steve interpret his wife's statement from an ethical perspective in the context of the facts?

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Definitions:

Leverage

The use of borrowed capital or financial instruments to increase the potential return of an investment.

Equity Financing

The process by which a company raises capital through the sale of shares.

Depreciation

A method of allocating the cost of a tangible asset over its useful life.

Noncash Expense

Expenses recorded on an income statement that do not involve a direct cash outflow, such as depreciation or amortization.