Silverado, Inc., is a closely held brokerage firm that has been very successful over the past five...

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Silverado, Inc., is a closely held brokerage firm that has been very successful over the past five years, consistently providing most members of the top management group with 50 percent bonuses. In addition, both the chief financial officer and the chief executive officer have received 100 percent bonuses. Silverado expects this trend to continue. Recently, the top management group of Silverado, which holds 40 percent of the outstanding shares of common stock, has learned that a major corporation is interested in acquiring Silverado. Silverado’s management is concerned that this corporation may make an attractive offer to the other shareholders and that management would be unable to prevent the takeover. If the acquisition occurs, this executive group is uncertain about continued employment in the new corporate structure. As a consequence, the management group is considering changes to several accounting policies and practices that, although not in accordance with generally accepted accounting principles, would make the company a less attractive acquisition. Management has told Larry Stewart, Silverado’s controller, to implement some of these changes. Larry has also been informed that Silverado’s management does not intend to disclose these changes at once to anyone outside the immediate top management group.
Required:
Using the code of ethics for management accountants, evaluate the changes that Silverado’s management is considering, and discuss the specific steps that Larry Stewart should take to resolve the situation.
(CMA adapted)

Robert · Accepted Answer

There are many ethical standards violated by the proposed changes
Competence: The top management requested Larry Stewart to help them account for the 
company’s information in such a way that does not follow the generally accepted 
accounting principles. This resulted in the violation of the standard which calls for 
“performance and discharge of professional duties as per the relevant laws, regulations, 
and technical standards.” In addition, the restriction placed on the top management for 
disclosure of information means violation of the standard to “to provide … 
information … that is accurate …” (I-3)
Confidentiality:

Silverado, Inc., is a closely held brokerage firm that has been very successful over the past five years, consistently providing most members of the top management group with 50 percent bonuses. In...

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