Question

Discussion Question

Cash in Hand Topic: Revenue Recognition/Misrepresentation of Fact by Client Characters: Heather Hunter, Senior in CPA firm “Buzz” Thompson, Owner/manager of Fashion First Sandy, part-time bookkeeper of Fashion First Author: Mary Brady Greenawalt, Associate Professor of Business Administration, The Citadel Co-author: Janine Cloutier, Virginia Tech

In addition to the usual mix of compilation, review, and audit clients for which Heather 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 First, an incorporated retail outlet, is a thriving local store. The business is run by a single owner/manager, “Buzz” 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 first visit to the client’s office, Heather is introduced to Sandy, the part-time bookkeeper who is also a full-time accounting student at the local university. At a subsequent meeting, Sandy confides to Heather that she found the job at the beginning of the semester after an extensive search. Sandy 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 Heather is someone she can talk to and get advice from, Sandy describes a situation that has been on her mind for some time now. Sandy’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. Sandy’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, Sandy noticed that $500 cash was missing from each deposit. After a more thorough inspection of monthly tax documents that “Buzz” Thompson has filled out, Sandy 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 Sandy 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, “Buzz” asserted, since Sandy wasn’t the person who signed the forms, she shouldn’t be concerned.

Questions: Explain your reasoning for each question in full length! What are the Ethical Issues? Who are the Primary Stakeholders? What are the Possible Alternatives? What are the Ethics of the Alternatives?

Answer 1

1. Ethical issues means such issue which are arrised due to adoption of unethical means to procure fraudelent money.Here, in this case Fashion First is local store run by Single owner Buzz Thomson with every decision making powers vested on him. The store has revenue recognition done on weekly basis after the collection being made on the basis of worksheet of collection from various modes like cash, Cheques, American Express or others,duly signed by Owner. The issue here is there has been manipulation on amount collected fromsale and amount deposited to bank or amount recorded in books sp.in Cash collected,since all other means are diectly entered into bank Account. Every deposit has been made short by $ 500 thereby causing $2000 shortfall for the period. He has misused his power by actical unethically to withdraw funds in fraudelent manner by manipulating cash collected account.

2. Since the business is wholly owned by Buzz thomson, so only primary stake holder of the retail outlet is Buzz Thomson himself ,Further more to support the answer ,decision making is also carried by him only .

3. The term possible alternatives here means in what ways such issue can be minimised .So such issue has arose due to manipulation of revenue by Owner therby to avoid tax complication on him. CPA firms , which have been engaged now should before submitting tax return on his behalf perform audit of its account and ensure there is no any manipulation or else it should qualify report and show exact amount in tax return. Further more, there should seggregation of duty for cash collection, entry into accounts and cash deposit to banks to avoid such issue.

4. Ethic behind the alternative mentioned above is integrity and non idea to another about what is collected and a fear as to if deposited amount become less than collected,etc. The main ethic is transaprency by every individual concerned.