Stretching the Principles of Revenue Recognition
Tiffany Fuentes
Business Ethics
April 11, 2014
Stretching the Principles of Revenue Recognition
In the business world, not everything will work perfect to our advantage, but one thing people in the business world should always make sure to do is to be smart when making decisions. The best way to be smart on making decisions is following their own ethics as leaders. To be successful, there should not exist dishonesty, greed, or arrogance because these three factors will bring any business to failure. However many times, leaders such as CEO’s and CFO’s are faced with difficult dilemmas that put them in question of their own ethics and values, such as the following case of the CFO of venture-backed tech startup, John and CEO Ralph. John and Ralph are faced with the dilemma of whether to commit fraud for the company’s ability to stay afloat, or have trouble with gaining sufficient funding in the second round, which could mean go bankrupt and that will be the end of the company. The problem leading to such a serious dilemma is that the company had been doing really well, but recently big customers have been placing fewer orders, giving Ralph the pressure to show growth because the company is ventured-backed and the investors expect results. Ralph feeling so pressured to show growth, talked to John about recording a major order that was still under negotiation as the current quarter is ending in the next few days; “including this order would give a significant boost to the company’s financial reports.” But doing so John knows they will be committing fraud for the survival of the company, as the paper states “the Sarbanes Oxley Act requires the CEO and CFO to sign off on all quarterly reports.” This dilemma puts John in test of his ethical standards. John is accountable to perform ethical business practice and SHOULD NOT record the major order before the deal goes through. He should tell CEO Ralph that he cannot perform fraud because it is against his
Business Ethics
April 11, 2014
Stretching the Principles of Revenue Recognition
In the business world, not everything will work perfect to our advantage, but one thing people in the business world should always make sure to do is to be smart when making decisions. The best way to be smart on making decisions is following their own ethics as leaders. To be successful, there should not exist dishonesty, greed, or arrogance because these three factors will bring any business to failure. However many times, leaders such as CEO’s and CFO’s are faced with difficult dilemmas that put them in question of their own ethics and values, such as the following case of the CFO of venture-backed tech startup, John and CEO Ralph. John and Ralph are faced with the dilemma of whether to commit fraud for the company’s ability to stay afloat, or have trouble with gaining sufficient funding in the second round, which could mean go bankrupt and that will be the end of the company. The problem leading to such a serious dilemma is that the company had been doing really well, but recently big customers have been placing fewer orders, giving Ralph the pressure to show growth because the company is ventured-backed and the investors expect results. Ralph feeling so pressured to show growth, talked to John about recording a major order that was still under negotiation as the current quarter is ending in the next few days; “including this order would give a significant boost to the company’s financial reports.” But doing so John knows they will be committing fraud for the survival of the company, as the paper states “the Sarbanes Oxley Act requires the CEO and CFO to sign off on all quarterly reports.” This dilemma puts John in test of his ethical standards. John is accountable to perform ethical business practice and SHOULD NOT record the major order before the deal goes through. He should tell CEO Ralph that he cannot perform fraud because it is against his