Question

CASE | Ethical dilemma Ricardo Valencia, CPA recently resigned his position as controller for Tom White Automotive, a small, struggling car dealer in Edmunton. New Brunswick, that sells automobiles made by a foreign manufacturer. Valencia has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough cars to satisfy demand. The manufacturer's regional sales managers are assigned a certain number of cars. Each regional sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because most dealerships can sell every car they receive, each Dealer's objective is to receive a large number of cars from the regional sales manager. Valencia's former employer, White Automotive, receives about 25 cars a month, and the dealership is not very profitable. Valencia is surprised to learn that his new employer, Mueller Imports, receives over 200 cars a month. Valencia soon gets another surprise. Every couple of months, a local jeweller bills the dealer $5,000 for "miscellaneous services." Franz Mueller, the owner of the dealership, personally approves the payment of these invoices, noting that each invoice is a "selling expense." From casual conversations with a salesperson, Valencia learns that Mueller frequently gives Rolex watches to the manufacturer's regional sales manager and other sales executives. Before talking to anyone about this, Valencia decides to work through his ethical dilemma by answering the following questions: 1. Does this transaction violate the CPA's standard of integrity? Explain! 2. What are Ricardo's options? (Provide at least 3 options) 3. What are the possible consequences? (Provide at least 3 options) 4. What should Ricardo do as a professional accountant? Should he resign? Should he inform CRA?

Answer 1

1 Ans- Yes, this transaction violates CPA'S standard of integrity.

Franz Muller approves the payment of the invoice of $5,000 as selling expense which is wrong in this case. He gives Rolex watches to the manufacturer's regional sales manager and other sales executive. So showing these payments as selling expense is wrong and hence this transaction violates CPA'S Standard of Integrity.

2 Ans- Ricardo's options:-

a) Ricardo can approach Muller that his action is wrong and it is violating the standard of integrity.

b) Being a professional CPA he can resign from his current employer.

c) Ricardo can inform the Central Record Keeping Agency about this.

d) Ricardo can remain indifferent to the situation and let everything happen as it is.

3 Ans- The possible consequences can be-

a) Ricardo can become jobless for a certain period of time.

b) If Ricardo remains indifferent to the situation then he may lose his CPA License.

c) Franz Muller can loose his dealership license in the long run.

4 Ans- As a professional Accountant Ricardo should resign and also inform the same to Central Record Keeping Agency (CRA) about it.