Remember in this discussion forum you should respond with substantial detail to this topic early in the module’s first week. This will be your “initial post.” For your initial post also bring in information from at least one background source or your own research to help inform your classmates. Cite the source.

Assignment

Discussion: The Balance Sheet Dilemma

An industrial firm is confronted with the dilemma of whether it should include—on its balance sheet—a very costly liability for the clean-up of a hazardous waste pool that has accumulated over the past several years as a direct by-product of its operations. The company agrees that the cost of cleaning up the hazardous waste pool is a cost of doing business.

However, including this massive financial liability in the company’s financial statements now will have the effect of immediately decreasing the total value of the company. In turn, because the company’s worth will be deflated, the company’s current stockholders will be harmed financially because the company will have lost much of its current value.

In contrast, if the company does not include the liability on its balance sheet, the company will clearly be overvalued, and will likely be viewed as dishonest in disclosure—and anyone buying stock (or ownership) in the company will also be unknowingly buying shares of a company that is overvalued (i.e., the balance sheet will be misleading, showing the company as having greater net value than it actually has).

Let’s assume that there are no accounting rules nor is there any clear guidance as to what this company should do. No matter what the company decides, innocent persons—existing shareholders (if disclosure is made) or future shareholders (if disclosure is not made and is later required) will be seriously harmed as a result of either decision.

Please describe the utilitarian implication of this situation. What do you think the company should do?

What would virtue ethics require be done?

Ethical categories aside, what would YOU do about the balance sheet? Why?

Note:

Remember in this discussion forum you should respond with substantial detail to this topic early in the module’s first week. This will be your “initial post.” For your initial post also bring in information from at least one background source or your own research to help inform your classmates. Cite the source.

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