E v aluating an Ethical Dilemma

Mike Lynch is the manager of an upstate New York regional office for an insurance company. As the regional manager, his compensation package comprises a base salary, commissions, and a bonus when the region sells new policies in excess of its quota. Mike has been under enormous pressure lately, stemming largely from two factors. First, he is experiencing a mounting personal debt due to a family member’s illness. Second, compounding his worries, the region’s sales of new policies have dipped be- low the normal quota for the first time in years.

You have been working for Mike for two years, and like everyone else in the office, you consider yourself lucky to work for such a supportive boss. You also feel great sympathy for his personal prob- lems over the last few months. In your position as accountant for the regional office, you are only too aware of the drop in new policy sales and the impact this will have on the manager’s bonus. While you are working late at year-end, Mike stops by your office.

Mike asks you to change the manner in which you have accounted for a new property insurance policy for a large local business. A substantial check for the premium came in the mail on December

31, the last day of the reporting year. The premium covers a period beginning on January 5. You de- posited the check and correctly debited cash and credited an unea r ned re v enue account. Mike says, “Hey, we have the money this year, so why not count the revenue this year? I never did understand why you accountants are so picky about these things anyway. I’d like you to change the way you have recorded the transaction. I want you to credit a revenue account. And anyway, I’ve done favors for you in the past, and I am asking for such a small thing in return.” With that, he leaves for the day.

Required:

1. How should you handle this situation?

2. What are the ethical implications of Mike’s request?

3. Who are the parties who would be helped or harmed if you complied with the request?