Instructional Case: Ethical Dilemmas in Reporting Environmental Liabilities.

Abstract The recent environmental movement in the U.S. has led to demands for increased corporate accountability for toxic wastes and increased oversight of corporate reporting by the SEC. This case examines the reporting and ethical dimensions of accounting for contingent environmental liabilities. We discuss the need for ethical or moral reasoning in accounting in general and the financial reporting of environmental liabilities in particular. The case employs a moral reasoning model adapted from one used in the training of accountants at a major international accounting firm. Using the case study approach provides students an opportunity to acquire the necessary technical expertise and helps develop moral reasoning skills. Although many U.S. corporations have significant unreported potential environmental liabilities, accounting textbooks currently provide surprisingly little coverage of environmental liabilities. Therefore, this case may also be a particularly useful supplement in intermediate accounting courses.