Peter is a CPA and the controller for PhoneBot, Inc. This year is an important o
ID: 2498464 • Letter: P
Question
Peter is a CPA and the controller for PhoneBot, Inc. This year is an important one for the company. The company is projected to make a profit after five years of product development and losses. In trying to complete the year-end financials, Peter finds that the numbers are not adding up and that the company seems to have overstated assets and income by $2.5 million. Based upon the short investigation that he has been able to do, it seems that the CEO and CFO have signed some documents which have inflated the numbers. Peter wants to approach them on this issue but is afraid he will lose his job because of the intense pressure that now exists.
Peter is pressured by time (a filing deadline of tomorrow to get the information to the printers for the shareholders’ meeting) and the following other considerations. The shareholders have been promised that an IPO of the company will be done within the next year. The banks have been patient in providing lending during the rough patch, but will have to declare the loans in default, and demand immediate re-payment, if the numbers are not close to break-even. The majority shareholder is the widow of the founder, who was renowned as a highly ethical person. (Her share in the company is the basis for her retirement pension providing around the clock nursing care.) Peter has his own personal pressures as he recently purchased a new $500,000 house using the last of his savings as a down payment, and his wife recently has taken an unpaid leave from her job due to a difficult pregnancy requiring total bed rest and medical bills.
What should Peter do and why?
Explanation / Answer
Ans:
As per accounting standards, financials statments should represent true and fair position of company hence Peter should explain the mistake to CFO and CEO and keep the updated financial ready.
Situation will become much worse if same is noticed by someone
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