Reference no: EM132760077

Question - Ling, SCM Corporation's controller, is concerned that net income may be lower this year. He is afraid that upper-level management might recommend cost reductions by laying off accounting staff, himself included. Ling knows that depreciation is a major expense for SCM. The company currently uses the same method for financial reporting as it uses for tax purposes-that is, a declining-balance method-and he is thinking of changing to the straight-line method.

Ling does not want to draw attention to the increase in net income that would result from switching depreciation methods. He thinks, "Why don't I just increase the estimated useful lives and the residual values of the property, plant, and equipment? They are only estimates anyway. These changes will decrease depreciation expense and increase income. I may be able to save my job and those of my staff." Ling calls his professional accounting body's "Ethics Hotline" and reaches the Ethical Accountant for advice.

If you were the Ethical Accountant providing advice to Ling, identify who the stakeholders are in this situation, what disclosures are required, whether any ethical issues are involved, and what Ling should do.