Instruction:  1) Identification of the ethical dilemma and conflicts of interest, 2) Identification of the stakeholders and ethical obligations to the stakeholders, 3) Identification of the accounting issue and proper treatment of it, 4) Identification of alternative options to address the ethical dilemma (this requirement is NOT asking for alternative accounting treatment options), 5) Identification of the consequences of the options, 6) Choose a course of action and describe why the choice was made in the following situation:

Situation:

Nancy is a new staff accountant for the City of Rockford and has been part of the financial services department for about 6 months. The City has a professional development program that allows staff members, with supervisor approval, to advance their education and/or pursue professional certification. She feels fortunate that her supervisor, Jerrod, is supportive of her efforts to earn both her CPA license and CGFM certification and he approved her participation in the professional development program.

Recently, Nancy has been assigned to take over the infrastructure asset accounts previously maintained by Jerrod. Her responsibilities include: 1) journalize expenditures related to these assets 2) prepare quarterly depreciation adjusting entries for those assets ineligible for the modified approach and, 3) maintain the modified approach documentation for the eligible infrastructure assets. In preparation for her first set of quarterly reports on infrastructure assets, Nancy is reviewing prior quarterly documentation and reports. Nancy observes and concludes the following: Ongoing expenditures for maintaining the eligible city-owned sidewalk subsystem meet the definition of repairs and maintenance and/or did not meet the capitalization threshold for the city. Nonetheless, these expenditures were capitalized instead of expensed. The summary reports previously prepared by Jerrod for the city council did not provide detail regarding the nature of the expenditures. Instead, the summary reports simply listed the capital expenditures as capital expenditures. If the expenditures had been expensed instead of capitalized, the infrastructure condition level as expressed in dollar terms, established by the city council would not be met. The three most recent condition assessment reports were prepared by Patterson Consulting and Construction. The condition assessment reports confirmed that the service utility of the sidewalk subsystem is preserved at the established condition level set by the city council. Nancy notes that the invoices show that Patterson Consulting and Construction not only prepared the condition assessment reports but also completed the majority of sidewalk preservation work. Nancy’s research of GASB standards for infrastructure asset accounting tells her that if infrastructure assets are not preserved approximately at or above the established condition level, the modified approach may no longer be used and those assets will need to be depreciated.

Interestingly, Nancy lunches with the individual that answers telephone and email communications for the city’s ‘citizen communication and interface center’. Nancy’s lunch partner tells her that the most common complaint received in the last 6 months dealt with the lack of repair of city sidewalk cracks. Also, Nancy overheard a conversation between her supervisor, Jerrod, and Kyle Patterson, the owner of Patterson Consulting and Construction that revealed Kyle as her supervisor’s brother-in-law.

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