Question - You and Stefanie, both of whom are CPAs, members of the AICPA, and the assistant controller and the controller, respectively, of the Logan Company, a small publicly-held manufacturing company, are discussing the financial close process for the current year. Stefanie has just returned from lunch with Brandon, the president and CEO of the company. Brandon suggested that Stefanie could be a good friend and a very practical executive by doing her part to increase income for the year. Brandon has just agreed to purchase a new yacht, and he is relying on his bonus to be able to make the down payment on it. If Stefanie could make sure that net income increased by at least ten percent this year, Brandon would receive a substantial bonus and be able to make the down payment.
Brandon suggested that Stefanie could aggressively record revenues at year end and delay recording as many expenses as possible.
Brandon also said he doubted the auditors would find this, and even if they did, they could be persuaded to "waive" any adjustments as being immaterial. Currently, it appears as though net income will increase by about six percent for the year. Stefanie is a single mom with two kids, 11 and 9 years old, to support. Your wife is a full-time mother to your four kids, ages 16, 12, 8, and 4, as well as helping to take care of your parents who are in their mid-80s.
Required -
1. What is the ethical dilemma Stefanie faces in this situation?
2. Identify the parties who would be affected by a decision to increase net income in the manner Brandon suggested. Who benefits? Who is harmed?
3. What alternatives are available to Stefanie?
4. What does Stefanie stand to gain by complying with Brandon's request? What does she stand to lose?
5. What advice would you give to Stefanie?
6. What would you do if she rejects your advice?