Discussion Board

Question

You have been the manager of a local restaurant for the past five years. Because of increased competition, you notice you’re getting fewer customers. Despite all your attempts to attract new customers and cut costs, the restaurant’s profitability continues to decline. The restaurant owner tells you that if this year’s profit is lower than last year’s, you’ll lose your job.

When preparing financial statements at the end of the year, you notice that this year’s profit is lower. You know that by purposely understating certain expenses, you can falsely report higher profits to the owner for this year. That will allow you to keep your job for at least one more year and look for a new job in the meantime.   

REQUIREMENT 1:  What are the key issues?

REQUIREMENT 2:  What if you really believe the lower profitability is caused by factors outside your control?  Would this make the false reporting acceptable?

REQUIREMENT 3:  What do you think is the correct thing to do?

Answer 1

Hello, Afreen,

REQUIREMENT 1:  What are the key issues?

The key issue is declining profitability due to customers going to new competitors.

REQUIREMENT 2:  What if you really believe the lower profitability is caused by factors outside your control?  Would this make the false reporting acceptable?

Never resort to false reporting. It is illegal and discovery of the falsification may result in imprisonment and loss of ability to operate as a manager in another store. It also hides the problem and makes correction extremely difficult.

REQUIREMENT 3:  What do you think is the correct thing to do?

Report the bad results and immedicate follow with a detailed action plan for recovery.