1.

Facts of the case

Erickson Santos, the President of Industrial Fasteners is eager to renew the ₱20 million loan

with Manila First Bank because he believes that the company won’t be able to repay its existing

debts with their current funds. The only way to raise such large fund is by renewing their loan from

Manila First Bank. The only problem is that the bank requires the company to improve their cash

flows in the current year compared to the previous one. Mr. Santos already knew that

improvements are very difficult to accomplish that’s why he came up with an alternative solution.

He plans to artificially increase its cash flows by selling or factoring most of the company’s

receivables.

2. The ethical issue and the stakeholders

The ethical issue on the case of Mr. Santos is the manipulation of receivables or asset

manipulation. He is planning to increase its cash flows by simply manipulating its receivables in

order for them to have a better cash flow. On the other hand, the stakeholders involved are Mr.

Erickson Santos, the company’s president and Mr. Timothy Dela Cruz, the company’s assistant

controller.

3. Values involved

Important values in accounting involved in the case is integrity. If the company would pursue

the plan made by Mr. Erickson and his assistant controller to manipulate its receivables, the

company would somehow lose its integrity as a company.

4. Alternative course of actions

First alternative course of action is to track expenses diligently

The first thing you need is some way to track expenses. This can be a software tool but it

doesn’t have to. A simple spreadsheet will do. When it comes to choosing a tracking solution,
make sure it’s easy to use and allows you to track expenses on a monthly basis using different

cost categories. Your next step is to figure out where you can get the actual cost information from.

The goal is that at the beginning of every month, you are able to pull out previous month’s cost

data of your project and hammer the data into your expense tracker.

The second course of action is streamlining your business processes

Another important aspect of managing your cash flow is making sure your business is running

as efficiently as possible. Focus on cutting time, not just costs. Analyze all of your current business

processes and judge how efficient the current process is, and if there’s any way to speed up that

process.

Maybe that means implementing accounting software to send invoices faster or rethinking

your employees’ inventory assembly process. By using time efficiently, you can get more done,

spend less on wages, and avoid excessive overtime pay (which can put a huge dent in your

business’s cash).

5. Evaluation of alternatives in terms of values

Both of the alternatives are not violating any value in terms of financial reporting or accounting

processes. Both of them are following standard accounting policies.

6. Possible consequences of alternatives

The downside of the tracking expenses diligently is that getting to the actual costs is not

always easy. The data may not be directly available to you, for example, you may not have access

to the system where the information is stored or you first have to extract the data from a larger

data set or invoices.

 The downside of the second alternative is that it requires a lot of planning. Streamlining

your business processes is not an easy task. It requires a new set of plans for your business in

order to exceed the current business process.

7. Decision

The company should track their expenses diligently in order to have a better cash flow for the

current year. Even though it might be hard to track and gather all those cost data, fortunately,

there are people who can help you get those cost data. It could be team leaders and department

heads with access to personal information, team assistants and secretaries, IT support staff, or

the purchasing team. These people usually have access to the information you need.