Revenue Recognition Cases

Part 1

I am the president and founder of Gold Strike Inc., a mining company that acquires land and mines gold. My success depends on finding large deposits of gold, in which I use extensive geological surveys and testing to verify. My current dilemma is that the price of gold has dropped approximately fifteen percent in the past six months, even with the assurance of engineers, there are still large deposits of gold that are continuing to be mined within our mines. Currently, I am allowed to recognize revenue when the gold is mined and processed, instead of when sold. However, with the price of gold declining, my revenues are also declined. May I recognize revenue from the gold that is still underground?

Stakeholders

With my revenues declining, my company is being affected. If I lose too much revenue, I could lose my investors and also my company. I am going to have to cut operating cost and even may have to lay-off employees. This is not a prospect that I want to have to face, but I have to be concern with my responsibility to my stakeholders. I know my employees will be affected with the losses and may even have to double their work load. However, I will not cut to the point that there is down time, because even with minimal staffing, the mines are still making some profits. In addition, I cannot cut staff to the point that it risk safety, as then the company will be at risk for investigations, ligations, and/or fines. Violations of safety could further affect my bottom line to the point that I lose my company and all investors.

What are the ethical issues in this situation?

In recognizing revenue there are many ethical issues that may develop. In this situation of recognizing revenue from elements in the ground that have not been mined or processed, would cause recognition to be too early. To prematurely recognize revenue would be equivalent to fraud because services are still required or in this case, the gold still has to be mined. Why would this...