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Accounting Ethics

  
Assume Ethan Lester and Vick Jensen are CPAs. Ethan was seen as a “model employee” who deserved a promotion to director of accounting according to Kelly Fostermann, the CEO of Fostermann Corporation, a Maryland-based, largely privately held company that is a prominent global designer and marketer of stereophonic systems. The company has an eleven person board of directors.
Kelly considered Ethan to be an honest employee based on performance reviews and his unwillingness to accept the promotion, stating that he wasn’t ready yet for the position. Kelly admired his willingness to learn and grow, not just expect a promotion. Little did she know that Ethan was committing a $50,000 fraud during 2018 by embezzling cash from the company. In fact, no one seemed to catch on because Ethan was able to override internal controls. However, the external auditors were coming in and to solidify the deception, he needed the help of Vick Jensen, a close friend who was the accounting manager and also reports to Ethan. Ethan could “order” Vick to cover up the fraud but hoped he would do so out of friendship and loyalty. Besides, Ethan knew Vick had committed his own fraud two years ago and covered it up by creating false journal entries for undocumented sales, returns, transactions, and operating expenses.
Ethan went to see Vick and explained his dilemma. He could see Vick’s discomfort in hearing the news. Vick had thought he had turned the corner on being involved in fraud after he quietly paid back the $20,000 he had stolen two years ago. Here is how the conversation went.
“Vick, I need your help. I blew it. You know Mary and I split up 10 months ago.”
“Yes,” Vick said.
“Well, I got involved with another woman who I tried to impress by buying her things. I wound up taking $50,000 from company funds.”
“Ethan, what were you thinking?”
“Don’t get all moral with me. Don’t you recall your own circumstances?”
Vick was quiet for a moment and then asked, “What do you want me to do?”
“T need you to make some entries in the ledger to cover up the $50,000. I promise to pay it back, just as you did. You know I’m good for it.”
Vick reacted angrily, saying, “You told me to skip the bank reconciliations—that you would do them yourself. I trusted you.”
“I know. Listen, do this one favor for me, and I’ll never ask you again.”
Vick grew increasingly uneasy. He told Ethan he needed to think about it… his relationship with the auditors was at stake.
1. Identify the stakeholders in this case and their interests. Give one example where their interests may coincide, and one example where there may be in conflict.
2. According to the Fraud Triangle depicted in chap 5 of the textbook, what are the pressures or incentives facing Vick Jensen? What opportunity does he have to commit fraud? What rationalizations is he likely to consider?
3.  Describe the ethical and professional responsibilities of Vick Jensen by applying Exhibit 3-11 from the textbook to the case. What concrete steps does he need to take?
4.  If Jensen agrees to go along with Lester’s request, which provisions of the AICPA code of conduct and the IMA Statement of Ethical Professional Practice (see the most recent version for the IMA at https://www.imanet.org/-/media/b6fbeeb74d964e6c9fe654c48456e61f.ashx) will he be violating? What does Jensen stand to lose?
5. Assume you are Jensen and you decide not to cooperate with Lester’s request. Using the Giving Voice to Values technique (see Mintz & Morris chap 2), write a dialogue between you and the person whom you selected to discuss this situation. Include the following elements in your dialogue:
• What do you need to say, to whom, and in what sequence?
• What will the objections or pushback be?
• What would you say next? What data and other information do you need to make your point and counteract the reasons and rationalizations you will likely have to address?

 

 

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