KAL Corporation’s controller, NN Low, is concerned that net
KAL Corporation’s controller, NN Low, is concerned that net income… KAL Corporation’s controller, NN Low, is concerned that net income may be lower this year. She is concerned that upper-level management might recommend cost reductions by laying off accounting staff, including herself. NN knows that depreciation is a major expense for KAL. The company currently uses the same method for financial reporting as it uses for tax purposes, which is a declining balance method. NN is considering changing to the straight-line method.NN does not want to draw attention to the increase in net income that would result from switching depreciation methods. She 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 expenses and increase income. I may be able to save my job and those of my staff.” NN calls her professional accounting body’s “Ethics Hotline” and reaches the Ethical Accountant for advice. Instructions As the Ethical Accountant providing advice to NN, identify the objectives of depreciation, who the stakeholders are in this situation, what disclosures are required, whether any ethical issues are involved, and recommend a course of action NN should follow.Use the previous information to provide your answer to the below questions: 1- Objectives:2- Analysis: identify stakeholders; identify ethical issues; rational / validity of changing depreciation methods; ASPE / IFRS disclosure requirements for accounting changes.3- Recommendation: your recommendation should include the impact of depreciation on cash flow. Accounting Business Financial Accounting ACCT 256
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