IT WAS JUST A CARELESS MISTAKE: A CASE STUDY OF ETHICAL DILEMMA

OF DAVID

Presented to the Faculty of

Department of Accounting Education

In Partial Fulfillment
Of the Requirements for the course
Governance, Business Ethics, Risk Management & Internal
(ACC 325)

October 2023
Executive Summary

‘It was just a careless mistake’ is a clip in which it shows a problem highlighting
the inconvenience made by the company, a total of $4.5 million cost of returned
goods. However, the problem was immediately addressed in which they found
remedies on how to handle the situation. Hence, there is a great possibility that it will
lower their sales and bonus of the employees.

Background of the Study

Almost all of us make mistakes in our life, some may be defined as a ‘careless
mistake’ while some are mistakes that are meant to be an absence of integrity. This
concept does not just only evolve to the dark side of the story but also opens a way
on how we view the situation with weighing matters before concluding. As we go
through, ethics is always on our way and affects how we decide to see the goodness
in things.

In this study, we aim for a better understanding on how we can possibly deal
with a careless mistake that was committed while protecting the reputation of the
company as well as the employees, specifically the sales department. Just like the
Finance Director-David, who was alerted from the returned goods near the end of
the year. Deals the situation by aiding the problem through proposing adjustments to
the financial statement in order to reflect the return. However, his proposal is
inflexible with the company. Finding out the unethical threats such as; Self-interest
which brought impact in adjustment and decrease of bonuses and Intimidation-threat
as there’s a planning of insisting to Top management without minding the possible
loss. It draws a conclusion that it will truly matter and in between the careless and or
absence of integrity.

Case Evaluation
a. Fraudulent Financial Reporting
Johnny, the Sales Director made an intentional misrepresentation of
the financial statement. Johnny accounted for staff error in which he explained
that it was shipped 50,000 units instead of 5,000 units and put sales
adjustment to January next year rather than in December. This is
 manipulation of records, falsification of transactions or the intentional
misapplication of various accounting principles.
b. Intimidation threat
Johnny, the sales director, insisted that David shouldn't adjust the sales
report regarding the $4.5 million returned goods as it was just a staff error.
Johnny Threatens David that if he refuses to cooperate and the report was
adjusted, they would consult the CEO regarding the issue applying pressure
on David. Using threats to manipulate information that harms professional
reputation, which can compromise the integrity of financial reporting.
c. Self-interest threat
Johnny displayed a clear conflict of interest by falsifying sales of
50,000 units, disregarding the fact that only 5,000 units were sold and 45,000
units were returned, resulting in a $4.5 million downturn in sales in pursuit of a
personal bonus. This unethical behavior undermines the trust and integrity in
the accounting process to pursue personal interest.
d. Ethical Dilemma
David is facing an ethical dilemma where he must decide whether to
adjust the sales statement to rectify an error, even if doing so might
compromise his bonus and relationship with his colleagues. Prioritizing
honesty, integrity and recognizing that maintaining the accuracy of financial
records is essential for ethical business practices and long-term
trustworthiness.
e. Staff Error
A careless mistake made by the staff, shipping 50,000 units instead of
5,000 units, could have significant ethical and financial repercussions.
Ethically, it raises concerns about attention to detail and quality control within
the company, potentially eroding trust with customers and stakeholders.
Financially, the company may face increased costs due to the error, impacting
profitability and, consequently shareholders' returns.
Proposed Solutions
Ethics is especially important in preparing financial reports because users of
these reports must depend on the good faith of the people involved in their
preparation. Users have no other assurance that the reports are accurate and fully
disclose all relevant facts. Getting involved in fraudulency in preparing the financial
statement to manipulate records and falsify transactions which trigger by self-interest
threats as well as execute intimidation threats. Because of the intentional misleading
of the financial report to meet bonus projections there is an ethical dilemma.
To create solutions, we have to consider the facts, what are the ethical issues,
what moral principles, values or norms are relevant to the decision, what are the
alternative courses of action for the decision maker, determine what are the best
solutions and choose suitable actions for the situation. Additionally, in making
decisions and solving cases we must consider the consequences of such actions as
well. We have four (4) suggested solutions provided below:

Consult the audit committee

If the pressure from Johnny intensifies David should consider consulting the
audit committee or any person that is in charge of governance in the organization.
He should seek their guidance on what he should do to ensure that any decision that
will be made is aligned with the accounting standards and principles through
presenting the current situation to them. David should hold to be true and fair and
consult the audit committee since the audit committee makes sure that the proper
procedures are in place for the detection and prevention of fraud, such as financial
statement fraud, asset misappropriation, and corruption. The audit committee
collaborates with management to ensure that all required measures are taken to
eradicate fraud (CFI Team, 2020). In such cases, it needs to resolve and develop
strong organization ethics programs that communicate expected behavior, candor
with management and immediate attention to issues (Weisbaum J., 2016).
When management and those responsible for oversight of the financial
reporting process fulfill those responsibilities, the opportunities to commit fraud can
be reduced significantly (Weisbaum J., 2016). Because a model of fraud detection
may not provide the best prediction when using merely historical financial statement
data to identify fraud (Sharma and Panigrahi, 2012). Hence, studies may consider
including the analysis of governance factors since it has been argued that the
deficiencies in corporate governance mechanisms have led to the wave of corporate
financial scandals (Fich & Shivdasani, 2007)

Address or communicate with the Chief Executive Officer (CEO)

David must engage in an open communication with the CEO through
presenting the current situation and explaining the conflicts therein, the morals or
standards that will be affected, and seeking the necessary solution that is upright in
the situation. In connection with this, the study of Cindy Sing-Bik and Rita Gill Singh
(2014) believes that communication is important as a strategic tool for corporate
communication to engage and enhance the understanding between the CEO and
stakeholders in order to function properly and be able to compete in this digital age.
In addition, effective corporate communication will accomplish business transactions
successfully (Sing-Bik and Gill Singh, 2014).

Employee withdrawal
In the worst scenario, David may think over leaving the company to
disassociate the unadjusted financial report made by Johnny. People can choose
whether or not to be engaged and for someone to put their heart to work, who firmly
believes in the value and objective of the organization. Same with David who holds
to be rightful that accounts should always be true and fair (Jatho K., 2017). If such a
notion has ever crossed David’s mind at work, if he probably thought about either
clarifying the issue or keeping your mouth shut. Many times, people tend to keep
their mouths shut because of habit and self-preservation (Glaser J., 2015). David
insisted Johnny to adjust the financial report however, Johnny threatens David if he
refuses to cooperate with the aforesaid issue. Therefore, David may consider
resigning to disengage the misleading information because whatever it takes, it’s the
same.
“Resignation is the voluntary act of an employee who is in a situation where
one believes that personal reasons cannot be sacrificed in favor of the exigency of
the service, and one has no other choice but to dissociate oneself from
employment.” (Pascua v. Bank Wise Inc., 2018).
Righteous disclosure of financial report
All relevant parties involved should be made aware of David’s ethical dilemma
as the Finance Director dealing with the return of goods by a major customer, Super
Pte Ltd. This awareness can promote transparency and ethical decision making
within the organization. “Transparency is a cornerstone of ethical corporate behavior.
Accurate financial reporting is vital for transparency ". From Obscurity to Clarity: How
Transparency Revolutionizes Sustainability Reporting. In this situation, where David,
the Finance Director, is facing opposition due to the potential decrease in bonuses
linked to a sales return, it's important to consider the ethical implications.
While bonuses are important, ethical principles should guide decision-making.
"Ethical conduct in financial reporting is paramount. Even in challenging
circumstances, maintaining transparency and adhering to accounting standards are
fundamental to the credibility and trustworthiness of a company's financial
statements." - International Ethics Standards Board for Accountants, IESBA.
Safeguarding ethical conduct in the situation involving David, the Finance Director, is
crucial to maintaining the company's integrity and reputation. David should consult
legal and regulatory guidance to ensure that any proposed adjustments to the
financial statements align with applicable laws and accounting standards. This
safeguards the company from legal risks.

Conclusion
In conclusion, David, the Finance Director, faced a challenging situation when
major customer Super Pte Ltd returned most of the goods shipped at the end of the
last year. Despite stiff opposition from within his company, David demonstrated a
commitment to handling the situation ethically. His ethical approach included a
careful review of documentation, consultation with experts, transparency in
communication, and a willingness to address concerns raised by colleagues. David
prioritized adherence to accounting standards and maintained a record of all key
decisions and discussions. Moreover, he was prepared to utilize whistleblower
protections if faced with unethical pressure.
Ultimately, by upholding ethical principles, David worked toward ensuring
accurate financial reporting and maintaining the company's integrity. While facing
opposition, he showcased ethical leadership and a commitment to finding a
resolution that served the best interests of the company and its stakeholders. This
case illustrates the importance of ethical conduct and transparency in financial
decision-making, even in the face of challenges.

Recommendation
Johnny should prioritize ethical conduct, transparency, and adherence to
accounting standards while addressing the issue of returned goods and proposed
adjustments to the financial statements. His actions should be well-documented and
guided by the best interests of the company and its stakeholders. Johnny should first
review the company's policies and accounting standards to ensure he is following the
correct procedures for handling returns and adjustments to financial statements.
Johnny should thoroughly document all decisions and reasoning behind the
proposed adjustments. This documentation will serve as a record of the company's
ethical approach to the issue.

Implementation

In response to the dilemma situation that David is facing regarding the

appropriation of the records of the sales figures as it will affect both his and the sales
team’s bonuses, an evaluation was conducted to find the issues in the study. The
evaluation revealed that the careless mistake of a staff in shipping 50,000 units
instead of 5,000 units is causing a difficulty and resulting in an error in the records of
sales statements. With the objective of correcting the record of sales, a strategy is
made centering in consulting the audit committee so that the honesty, integrity, and
maintaining the accuracy of financial records will be prioritized. Initial steps will
involve a thorough evaluation of all relevant documents, including sales records and
internal communication. This information will be put into a thorough summary
describing the moral issues and their effects on financial reporting. The situation will
then be thoroughly explained, emphasizing the ethical dilemmas present, such as
potential fraudulent reporting, intimidation methods, self-interest conflicts, ethical
dilemma, and staff error, in a meeting with the Audit Committee that will be
requested. There will be suggested solutions presented, supported by transparency
and compliance to accounting standards.
 Open discussion will be encouraged during the meeting so that the Audit
Committee can offer constructive criticism and guidance. To ensure compliance with
accounting standards and ethical principles, specific advice on the best course of
action will be requested. Comprehensive notes will be taken throughout the meeting
to record the Committee's comments, suggestions, and any assigned action items.
Following the meeting, the suggested solutions will be modified according to the
implications of the comments received. The meeting will be publicly reported on,
along with the Committee's recommendations and any amended action plans. We'll
stay in touch with the Audit Committee, providing updates on our progress and, if
necessary, seeking additional guidance. Lastly, to ensure a structured and open
approach to addressing the financial reporting difficulty, all material associated with
this topic will be safely archived for future reference. The reputation and financial
integrity of the company are ultimately protected by this procedure, which places a
high priority on ethical behavior, integrity, and compliance to accounting rules.
 References

CFI Team. (2020). Audit Committee. Audit Committee Regulations. Retrieved

from [Link]
Cindy Sing-Bik and Rita Gill Singh 2014, Communication With Stakeholders
Through Corporate Web Sites: An Exploratory Study on the CEO Messages of Major
Corporations in Greater China. Retrieved October 5, 2023, from:
[Link]
lders_Through_Corporate_Web_Sites_An_Exploratory_Study_on_the_CEO_Messa
ges_of_Major_Corporations_in_Greater_China
Fich, E. M., & Shivdasani, A. (2007). Financial fraud, director reputation, and
shareholder wealth. Journal of Financial Economics, 86(2), 306-336. Retrieved from
[Link]
hallenges_and_Technology_
Glaser, J. E. (2015). Withdrawing at Work: Why You Do it, and One Way to
Cope. That’s not what I meant. Retrieved from
[Link]
croft/Deployment_in_Fraud_Detection
Jatho, K.. (2017). Employee Withdrawal: What if People Suddenly Disengage
at Work? How Does It Affect Your Company?. Retrieved from
[Link]
Pascua v. Bank Wise Inc., G.R. No. 191460. (2020). Labor Law PH.
Resignation. Retrieved from
[Link]
Sharma, A., & Panigrahi, P. K. (2012). A review of financial accounting fraud
detection based on data mining techniques. International Journal of Computer
Applications, 39(1), 37-47 Retrieved from
[Link]
hallenges_and_Technology_Deployment_in_Fraud_Detection
Weisbaum, J. (2016). What is the Audit Committee’s Role in Prevention,
Deterrence and Detection of Fraud? Consideration of Fraud in a Financial Statement
Audit. Retrieved from [Link]
the_audit_committees_role_in_prevention%2c_deterrence_and_detection_of-fraud
 2023, From Obscurity to Clarity: How Transparency Revolutionizes
Sustainability Reporting. Retrieved October 5, 2023, from: [Link]
us/fro-mobscurity-to-clarity-how-transparency-revolutionizes-sustainability-reporting/