Pressure on earth

Pressure From Management

The burden for public companies to succeed at high levels may place undue stress and pressure on accountants creating balance sheets and financial statements. The ethical issue for these accountants becomes maintaining true reporting of company assets, liabilities and profits without giving in to the pressure placed on them by management or corporate officers. Unethical accountants could easily alter company financial records and maneuver numbers to paint false pictures of company successes. This may lead to short-term prosperity, but altere d financial records will ultimately spell the downfall of companies when the Securities and Exchange Commission discovers the fraud. Accountant as Whistleblower

An accountant may face the ethical e thical dilemma of reporting discovered accounting violations to the Financial Accounting Standards Board. While it is an ethical accountant's duty to r eport such violations, the dilemma arises in the ramifications of the reporting. Government review of company financial records and the bad press caused by an accounting scandal could cause the company's rapid decline and may lead to the layoff of thousands of employees. Executives and other corporate officers could also face criminal prosecution, leading to heavy fines and prison time. The Effects of Greed

Greed in the business and finance world leads to shaving ethical boundaries and stepping around safeguards in the name of making more money. An accountant can never let the desire to earn a better living and acquire more possessions get in the way of ensuring that she follows ethical guidelines for financial reporting. An accountant who keeps her eyes o n her own bank account more than on her company's balance sheet becomes a liability to the company and may cause real accounting violations, resulting in sanctions from the SEC. Omission of Financial Records

A corporate officer or other o ther executive may ask an accountant to omit or leave out certain cert ain financial figures from a balance sheet that may paint the business in a bad light to the public and investors. Omission may not seem like a significant breach of acco unting ethics to an accountant because it does not involve direct manipulation of numbers or records. This is precisely why an accountant must remain ethically vigilant to avoid falling into such a trap.

Rusty and Dusty Slow Movers Topic: Asset Valuation/Write-Downs Characters: Ron, Inventory Control Cle rk Penny, Controller Art, Company President Rhonda, Sales Manager Penny is the first Controller ever hired at a medium-sized farm machinery company. The firm has reacquired tractors and other parts and equipment from farmers who filed for bankruptcy or were seriously behind in their monthly payments during a recent two-year downturn in the economy. In addition, the firm has acquired some miscellaneous inventory from competitors experiencing the same misfortune. One of Penny’s initial goals is to determine how accurately the inventory on the books reflects its fair

market value. As she walks with Ron, the inventory control clerk, through all the equipment and inventory pallets, she notices that numerous parts and machines look rusty and dusty. Ron informs her that while only about a third of t hese items are repossessions, most are from overruns or the recession; “many have been sitting on these skids for years.” As Penny inquires further, it appears that this problem is extensive, and that this inventory moves slowly. When the inventory does sell, it is at a significant discount. Rhonda, the Sales Manager, indicates that these are really tough times to sell this stuff, especially because most of the “slow movers” are large-ticket items. In fact, Rhonda feels sorry for her sales staff since they have been forced by the company president to push these items with only 2 percent more in commission. Finally, Penny approaches Art, the Company President, about t his problem and asks what he intends for her to do about the dilemma. Art informs her that he believes that many o f these items are salable given appropriate marketing and the right economic conditions. Besides, some of his major customers owe him a few favors. Art also indicates that now is not the right time for t he company to take a hit from inventory revaluation. During the ensuing months, Penny did not see much movement from these stacks. She again approached Art and asked how he would address this issue when the audit came. Art reiterated his former response regarding product salability and stressed actual sales acr oss all product lines to the auditors. He asked Penny not to point out this problem to the auditors and finally said, “just see if they notice it. And if they start nosing around in it, I hope you'll be able to show them that some of these items are turning over.” Penny interpreted Art as sa ying she should help falsify records if it looked like the auditors were discovering the slow movers. Penny didn’t know what she would do next. Conflicting Clients Topic: Auditing (Confidentiality , Misrepresentation of Fact) Characters: Jennifer Grace, First-year member of her CPA firm’s management group Tom Ward, CFO of Fantastic Developments, Inc., a client While reviewing the current-year audit working papers of Coshocton National Bank (CNB), the engagement manager, Jennifer Grace, noted something curious. In the working papers related to loan valuation, Jennifer saw that the commercial loan of Fantastic Developments had been randomly selected for confirmation but that Fantastic had not responded to either the initial or second

confirmation request. The audit staff disposed of this “loose end” by alternate procedures: examining cash collections (which had become somewhat sporadic) and vouching to underlying loan documentation, including a set of recent (unaudited) financial statements that showed Fanta stic’s solid financial position and operating profitability. Jennifer noted this reference to Fantastic Developments because this private company was also a client of her firm. In fact, Jennifer had served as the audit senior on the prior-year audit of Fantastic. She knew that the company had been struggling for a couple of years and had experienced r ecurring operating losses. Her knowledge of Fantastic did not reco ncile with the discussion in the audit working papers related to the financial statements furnished to the bank. When Jennifer contacted Fantastic’s CFO, Tom Ward, and inquired about the company’s apparently miraculous turnaround, he was noncommittal and unhelpful. Tom replied that business had picked up. He apologized for not calling Jennifer’s firm himself because he had been so busy, and then he to ld her that Fantastic had decided to engage another CPA firm for its accounting and auditing needs. Although confused, Jennifer obviously couldn’t reject the possibility that this abrupt dismissal was a direct consequence of her inquiry.

As a result, Jennifer wonders whether the financial statements which Fantastic furnished to the bank as a basis for a loan application are fraudulent. The bank apparently has no such suspicion, however. Author: Donald E. Tidrick, Assistant Professor of Accounting, University of Texas at Austin.