Nebobites Ethical Dilemma

The risk of management fraud needs to be considered when determining tolerable misstatement because the risk of fraud directly affects the risk of misstatement. Smith & Jones has a percentage that tolerable misstatement thresholds should not exceed, which is adjusted tolerable misstatement guidelines, with low risk of management fraud misstatements should balance each other out. However, when high risk of management fraud is likely misstatements will likely skew the company’s numbers to overstate the company’s income (ex. overstating income and understating expenses). If numbers are fraudulently misstated with the goal of increasing income, the chance of highly material misstatements drastically increases.

In today’s world, the role of IT has turned accounting estimated critical in financial reporting and disclosure. Houghton and Fogarty have said that non-accurate or incorrect estimates have often caused to misstatements in audit report (Gray & Manson, 2007).

The Molex Corporation is an electronic connector manufacturing firm, which is based in Illinois. This company is facing a financial reporting problem in which the financial statements were overstated. Joe King ,the CEO of the company, was appointed in July of 2001, and was responsible for managing and inventory control, among other very important duties. Diane Bullock was hired in 2003, to replace the previous CFO. Both Bullock and King were being accused of what? by the external auditors, Deloitte & Touche, for not disclosing an 8 million pre-tax inventory valuation error.

Megan’s suggestion can seriously influence the accuracy of the audit report. There may be material misstatements that go unnoticed by the auditors that otherwise would have been caught have they not skipped steps. In doing this, the auditors may issue an opinion not suitable for the company’s financials.

As shareholders of VAFLA Corporation, an S corporation, the appellants claimed deductions to reflect the corporation’s operating losses. The commissioner disallowed deductions above the $10,000 bases from original investment. The appellants contend that the adjusted basis in their stock should be increased to reflect a $300,000 loan. The loan was obtained by VAFLA from bank and was guaranteed by the shareholder-guarantors. VAFLA made all of the loan payments, principals and interest to the bank and the appellants did not. Neither VAFLA nor the shareholder-guarantors treated the loan as constructive income taxable to the shareholder-guarantors.

In the above question [question 1] Fred Smart was the auditor of Photolab Ltd. Fred Smart’s wife owns 10% of the shares in Photolab Ltd. When Fred is conducting the audit he is concerned about the company’s accounts, in that the company has not kept proper financial records. He also cannot find any evidence that the company has maintained a register of its members or its charges. Tom tells him he will find them and give them to him but never does. The company tells Fred Smart that it intends to show his report to BigBank, as they wish to borrow $100,000 for expansion purposes. The company

The author of Proverbs confirms to "Trust in the Lord with all your heart, and do not lean on your own understanding, in all your ways acknowledge Him and He will make your paths straight" (Proverbs 3:5-6, ESV). Employee ethical concerns are to be dealt with according to internal process and procedure, such as employee and contractor agreements. First, I would find an ethics hotline for the company. These hotlines are meant to allow employees and contractors to report possible wrong business practices and discrimination. Next, I would inform my direct management of the findings. After this discussion, I would consult the appropriate legal counsel about next steps understanding that the CIO may retaliate but morally, I have to report the issue. Employees must be trained on the ethical and legal implication of falsifying information and proper way to respond to differing opinions (Kaupins & Park, 2011). As seen in Proverbs 21:6 " The getting of treasures by a lying tongue is a fleeting vapor and a snare of death" (ESV). My trust is in the Lord and He will glad my decision and protect me. A job is temporal but my faith is eternal. God will provide employment is I lose my job for reporting the issue. Additionally, he will be by my side to guide me through the legal ramification of reporting the tampering of business data and

Your workplace will have it’s own policies and procedures in place detailing and to who you should report your suspicions to and the correct course of action to follow.

To start with, upon learning of the error in estimation made by Ligand, Deloitte inherited the responsibility to recommend the correction of the previous year’s financial statements. This responsibility stems from two main facts. First, auditors are Certified Public Accountants and as such, have a responsibility to serve the best interests of the public. (Louwers 583) By not recommending a restatement of the financial statements, Deloitte would be knowingly allowing the public to rely on information that is not accurate. Second, Deloitte should recommend the restatement to ensure that they are exercising due professional care, the lack of which could lead to lawsuit or penalty (which they eventually got).

In this case, Nicki should not quit, she should inform someone higher than her supervisor. Communicating to the supervisor and getting the response to leave it alone and to focus on her team. Based on how uncomfortable Nicki feels, she should speak to someone higher than the supervisor because when dealing with Medicare coding, the company must be very careful for fraud is not created. Due to how the supervisor responded there is a responsibility that the supervisor does not know the importance that must be taken when dealing with Medicare coding. Going to someone higher, they may not

1. The implication of this factor is there may be an increased risk of misstatement of bad debt expense and the allowance for bad debts. The auditors may decide to assign a more experienced auditor to this audit area. In addition, the auditors will decide to increase the evidence related to the adequacy of the

| Implication: Increased risk of misstatement of bad debt expense and allowance for bad debts. Response: Assign more experienced auditors to this area. Increase evidence.

The case study General Mills Inc. - Understanding Financial Statements focuses on the most basic idea of finance analysis. This case is a brief look into the language that is used in the finance world and a start to interaction with auditors. In this case, KPMG LLP, the public accounting firm that was auditing their statements, had sent two opinion letters. The first letter was ensuring that both parties were aware that General Mills had internal control over financial reporting. The second opinion letter stated that to auditor’s knowledge, General Mills had correctly reported its financial statements. The statements given in this case study are known as the four general financial statements. Displayed in the case are the

2) By increasing net income in the manner Derek suggested, Derek would benefit in terms of gaining a substantial bonus and likely a new yacht, Susan and I might benefit in terms of maintaining our jobs and likely getting promoted. On the other hand, other stakeholders such as stockholders, employees, vendors and suppliers, creditors, and investors might be harmed as a result of making wrong decisions by relying on the fraudulent financial statements.

The external users that will want financial information about the company will receive false information because the books are incorrect and this one egregious error will be the tip of the iceberg. Once the external users lose confidence in the company then the company will be doomed to fail because of that lack of trust coming from the accounting department, the very ones that control the money.