Should Sarah follow Shannon’s advice? Shannon’s advice is solid but does not go far enough because she doesn’t — What and Paul back off additional levers can use influence make her
Computer Science & ITGeneralWorked Solution
Should Sarah follow Shannon’s advice? What if she does and Paul does not back off? What additional levers can she use to influence Paul and make her values understood?
SOLUTION
Shannon’s advice is solid but does not go far enough because she doesn’t suggest how Sarah might go about convincing Paul to not record the revenue earlier in 2015. Shannon was right to recommend that Sarah consider just what are her ethical responsibilities in the matter. However, Paul is also a CPA and will know what these are all too well.
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Sarah has to explain to Paul that she is obligated to stand firm on her position. She compromised her values once but can turn the ship around this time by not giving in to the pressure imposed by Paul.
Let’s assume Sarah decides to be firm with Paul that she can’t go along with the acceleration of revenue. The strongest lever she has is to explain that revenue from swap transactions essentially cancel each other out. Solutions Network is selling software to DSS at the end of 2015 and promising to buy similar software from DSS during the first 30 days of 2016. Given the commitment to buy similar revenue 30 days after the initiating transaction, Solutions Network should delay recording the revenue until its part of the transaction is completed. At that time the two transactions cancel and no net revenue would be recorded. A footnote should be included in the financial statements to explain the arrangement.
Sarah can suggest bringing the matter to the attention of the audit committee. That might convince Paul to correct the accounting. She can also remind Paul that the auditors will arrive in 15 days and are likely to question the accounting for revenue if it is not corrected before that time. She should be steadfast and tell Paul she won’t deceive the auditors for a second time.