Ethical Obligations and Decision Making in Accounting, 4/e 1
Case 4-3 Family Games, Inc.
Family Games, Inc., is a publicly owned company with annual sales of $50 million from a
variety of wholesome electronic games that are designed for use by the entire family. However,
during the past two years, the company reported a net loss due to cost-cutting measures that were
necessary to compete with overseas manufacturers and distributors.
Yeah, I know all of the details weren’t completed until January 2, 2016, but we agreed on the
transaction on December 30, 2015. By my way of reasoning, it’s a continuation transaction and
the $12 million revenue belongs in the results for 2015. What’s more, the goods are on the
delivery truck waiting to be shipped after the New Year.
“Listen, Helen, this comes from the top,” Land said. “The big boss said we need to have the $12
million recorded in the results for 2015.”
“I don’t get it,” Helen said to Land. “Why the pressure?”
“I can’t change the facts,” Helen said.
“All you have to do is backdate the sales invoice to December 30, when the final agreement was
“You’re asking me to ‘cook the books,’ ” Helen said. “I won’t do it.”
“I hate to play hardball with you, Helen, but the boss authorized me to tell you he will stop
Ethical Obligations and Decision Making in Accounting, 4/e 2
that she could afford to pay for the full-time care needed by her autistic son.
Questions
1. Explain the nature of the dilemma for Helen using the AICPA Code as a guide.
What steps should she take to resolve the issue?
CPAs should change accounting treatments only when it is to follow GAAP or provide
fair disclosures, not because of threats or bribes. As a person of integrity, Land should not
subordinate his judgment to the CEO based on pressure imposed and the fallout from his
gambling problem. The only reason to change accounting is if a different treatment better
reflects GAAP including representational faithfulness in measurement and recognition.
2. What would you do if you were in Helen’s position? How would you attempt to
convince Carl Land of the rightness of your position and give voice to your values?
Helen needs to look at the bigger picture. Is it worth sacrificing her integrity to protect
her boss and be seen as a team player? Even if she loses the child care coverage, there is
no price too high to pay to ensure one is acting on ethical principles including honesty,
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Helen needs to argue the issue on its technical merit. Land’s position that it is a
continuation transaction and would have been shipped but for the lack of lawyers signing
off on the transaction is the kind of technicality that makes the difference between
manipulated earnings and earnings honestly determined and in accordance with GAAP.
Land is attempting to manage earnings but all he is doing is borrowing from future
earnings to make the current period look better. It is an ethical slippery slope because he
will need to do the same next period and ultimately the house of cards that is built will
come crashing down.
Land is the CFO and may also be a CPA. If so, Helen can point out that his reputation is
also at stake as well as is his standing as a CPA.
To give voice to her values, Helen should start by going to a trusted advisor to discuss the
matter. She can develop a script to voice her values based on getting sound and reliable
advice perhaps from someone who has been through this kind of situation before.
A threat to Integrity and Objectivity exists in this case because of the contentious nature
of the issue between Helen and Land, and the CEO’s position. The likely safeguard is an
audit committee since Family Games is a public company. Helen should follow the
prescribed steps in Exhibit 3.13 and, if necessary, consider blowing the whistle by
contacting the external auditors. Whistleblowing to the SEC is also an option especially if
the company creates barriers to her ethical action and/or harm will come to the investors
if the accounting is not in accordance with GAAP. Since the dilemma comes at about the
same time as the transaction, it seems clear that the requisite 120 days have not yet
passed for her to use this condition for whistle-blowing under Dodd-Frank.
Using ethical reasoning to buttress Helen’s decision, from a right perspective the
stakeholders have a right to receive accurate and reliable financial statements prepared in
accordance with GAAP and with adequate disclosures. Helen has a right to work in a job
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