Question

Tyler Corporation started its operations in March. During the first year of operation, a significant amount of money was spent on attorneys’ fees and promotional expenses connected with organizing the corporation. The amount of revenue Tyler Corporation earned for the year was much higher than expected. Because of this, the accountant decided to charge the attorneys’ fees and promotional expenses to advertising expense in the current year.

If the accountant simply was not aware of the proper treatment of these expenditures, were any ethical principles violated?

Discuss your opinion of this situation and the responsibility of the accountant.

Answer 1

Actually, the accountant has followed proper procedure regarding organizational costs. Assuming an accountant had unknowingly followed improper treatment in accounting for the costs, he probably did not violate ethical principles.

These expenditures should be expensed as organizational costs in the year incurred.

It should be clear that costs related to organizing a corporation are expensed when incurred.

There is a very fine line between unethical decisions and careless decisions. Carelessness, in itself, can sometimes be unethical. Students’ answers will be based on their values and understanding of ethical principles.