Question

As a newly hired accountant, the CEO of the company asked you to review the company’s income statement for a upcoming board meeting. The CEO comments to you that the previous accountant, no longer with the company, had already prepared the information. Upon your review, you find that the previous accountant had embellished some of the sales and did not appropriately account for all of the expenses to make the income statement look much more lucrative for the company. What would your first course of action be? How would you approach the discrepancy of information and present your findings to the CEO and board members? What response from the CEO would dictate to you the principles and values of the company to you as a new employee?

Answer 1

As the accountant of the company it is your duty and obligation to point out the irregularities in the company’s income statement. You can point this out by writing an e-mail to the company’s CEO and the board members as well. In your e-mail fully explain the situation and the fact that sales have been inflated and some of the expenses have been intentionally not been properly accounted for. This has been done for the purpose of reporting a net income which is higher than the actual amount of net income. Hence this is a clear case of ‘window dressing’ the books of accounts in which the numbers have been manipulated to deliberately make the results and figures look more attractive. In your e-mail to the CEO and board members clearly explain why such an action is both unethical as well as illegal and can cause serious legal ramifications for the company in future.

The response from the CEO, in this case, will give me a reasonable idea with regards to the principles and values of the company. If the CEO acknowledges the problems and instructs you and the accounting team to rectify the errors then the company’s principles and values are based on ethical code of conduct and hence these principles and values will be acceptable to you. However if the CEO asks you to ignore the situation you can clearly conclude that the company’s principles and values are devoid of ethics and hence the level of corporate governance at the company is weak. In such a case you can opt to take further action like whistle blowing.