Aol Case Study

It was wrong for AOL to capitalize the advertising costs. First, the general rule set forth in SOP 93-7 is that “the costs of advertising should be expensed either as incurred or the first time the advertising takes place.” Instead of expensing the advertising costs as they should have, AOL was reporting the costs as an asset on its balance sheet, and capitalizing the costs as deferred membership acquisition costs. Doing this shows that AOL’s board of directors are very egoistic, and focused on the wellbeing of the company as opposed to being honest to its shareholders. This would place AOL in stage two of Kohlberg 's model, because they are focused on doing what 's best for themselves, even though it may break the rules. Also, since AOL’s

AOL focused on satisfying their own needs when they decided to do what they did. They wanted to report profit so that shareholders wouldn’t see that they had loss for 8 straight periods. The rules and authority were only important to them if they satisfied their own needs. If AOL was at stage 3, they would have been more inclined to be fair to others. They would have not only been motivated by rules, but seek to do what is in the best interest of others, such as their stakeholders. If AOL was in this stage, they probably would have reported the advertising costs as an expense, even though it would be bad for the company. If AOL was at stage 4, they would also do the right thing by reporting the costs as an expense. Stage 4 level emphasizes the morality of law and duty to the social order. AOL would feel that it is their duty to report the costs as an expense, because it is in the best interest of society. Lastly, if AOL was at stage 5 reasoning, they would be motivated by upholding the basic rights, values and legal contracts of society. AOL would have to analyze the costs and benefits of reporting the costs as an asset versus reporting them as an expense. They should come to the decision that reporting the costs as an expense would be the best outcome for society, and cause the least