Question

Please consider the scenario below and let us know if you believe Lauren Smith's actions to be ethical. Please let us know why or why not.
Lauren Smith is the controller for Sports Central, a chain of sporting goods stores. She has been asked to recommend a site for a new store. Lauren has an uncle who owns a shopping plaza in the area of town where the new store is to be located, so she decides to contact her uncle about leasing space in his plaza. Lauren also contacted several other shopping plazas and malls, but her uncle’s store turned out to be the most economical place to lease. Therefore, Lauren recommended locating the new store in her uncle’s shopping plaza. In making her recommendation to management, she did not disclose that her uncle owns the shopping plaza.

if management decided to go with Lauren's uncle's plaza, what additional information would be needed in the financial statements?

Answer 1

Answer:

there should be a related party (connected person) disclosure in the financial statement.

Explanation:

Lauren Smith's action is unethical. Having not disclosed this to management is a dishonest action. Ethical behaviour entails being honest and truthful at all times. In accounting (financial statement reporting) connected persons transactions are disclosed as notes to the account. This is to determine it such transactions were done below market value or for other considerations.

Thus, the transaction (lease) will have a note stating that the lease was from an Uncle of the firm's financial controller.In this way, it will show transparency that the firm is not trying to hide some fundamental facts of the transaction.