Ethics: Under Protection provides underground storage facilities for companies desiring off-site storage of sensitive documents, computer records and other items. They have developed a sophisticated surveillance and security system which they initially used in their own facilities, and have recently started to market elsewhere as well.
The underground storage facilities are made from natural caves in some instances (reinforced and modified as appropriate) and from excavations of natural rock formations in others. The land was purchased over twenty years ago for a total of $1.5 million. The modifications have cost approximately $10 million more. The company no longer records the storage facilities in its accounting system because the market value of the property is too difficult to determine. Presently, the market price could be anywhere between zero and $40 million.
Samantha Davis, a new accounting manager, questioned this accounting policy. Mark Johnson, the financial controller, has told her that she needn't worry about it. For one thing, he says, this is really a special form of asset which should not be recorded as it has been fully depreciated in the past. For another, this is a privately held company, and so they don't need to worry about misleading investors. All the owners know about and approve the accounting policy.
Required:
What are the ethical issues in this situation?

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The Answer of Ethics: Under Protection provides underground storage facilities for companies desiring off-site storage of sensitive documents, computer records and other items. They have developed a sophisticated surveillance and security system which they initially used in their own facilities, and have recently started to market elsewhere as well.
The underground storage facilities are made from natural caves in some instances (reinforced and modified as appropriate) and from excavations of natural rock formations in others. The land was purchased over twenty years ago for a total of $1.5 million. The modifications have cost approximately $10 million more. The company no longer records the storage facilities in its accounting system because the market value of the property is too difficult to determine. Presently, the market price could be anywhere between zero and $40 million.
Samantha Davis, a new accounting manager, questioned this accounting policy. Mark Johnson, the financial controller, has told her that she needn't worry about it. For one thing, he says, this is really a special form of asset which should not be recorded as it has been fully depreciated in the past. For another, this is a privately held company, and so they don't need to worry about misleading investors. All the owners know about and approve the accounting policy.
Required:
What are the ethical issues in this situation?

Ethics: Under Protection Provides Underground Storage Facilities for Companies Desiring