In: Accounting
Controllership in Accounting
Topic: Revenue & Misrepresentation by Clients
Characters: Rachel Hanson, Senior in CPA firm
Jim Thompson, Owner/manager of Fashion Line
Sharon, part-time bookkeeper of Fashion Line
In addition to the usual mix of compilation, review and audit clients for which Rachel Hunt
serves as a senior in a small office of a regional CPA firm, she has been assigned a new
client that recently engaged the firm. Fashion Line, an incorporated retail outlet, is a thriving
local store. The business is run by a single owner/manager, Jim Thompson, who makes
all major decisions. The business has not previously used the services of a CPA firm. In
addition to preparation of financial statements, the CPA firm will handle tax returns for the
business.
At her Line visit to the client’s office, Rachel is introduced to Sharon, the part-time
bookkeeper who is also a full-time accounting student at the local university. At a
subsequent meeting, Sharon confides to Rachel that she found the job at the beginning of the
semester after an extensive search. Sharon really needs the money to help finance her
education, and feels lucky to have found a good-paying job during the current economic
downturn. Feeling that Rachel is someone she can talk to and get advice from, Sharon
describes a situation that has been on her mind for some time now.
Sharon’s concern relates to the handling of sales revenues. When monies from sales revenues
are counted and deposited on a weekly basis, a chart is filled out with categories carefully
delineating the type of payment: cash, checks, American Express, or Visa/Mastercard.
Sharon’s employer, after depositing the weekly total, brings this chart back with his own
written-in total of the actual amount deposited.
After looking over some of these weekly deposit chats, Sharon noticed that $500 cash was
missing from each deposit. After a more thorough inspection of monthly tax documents that
Jim Thompson has filled out, Sharon noticed that the reported monthly gross revenue was
$2,000 less than what had been actually counted.
The employer is the only person handling the money after it has been counted. He is also the
only one to deposit the money. When Sharon asked Mr. Thompson about revenue not being
reported for tax purposes, he assured her that every dollar of income was reported on the tax
forms. Furthermore, Jim asserted, since Sharon wasn’t the person who signed the forms,
she shouldn’t be concerned.
Answer the following question from the case above :-
1. What are the relevant facts of the case?
2. What, if any, are the ethical issues?
3. Who are the stakeholders?
4. What are the possible alternatives including any ethical concerns?
5. What are the practical constraints?
6. What action(s) should be taken?