Ethical Decision:
Individuals who pursue a career in accounting take on a high level of responsibility not only for the company they are accounting for but also to the public. The definition of an accountant is, “a practitioner of accounting or accountancy, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources.” Like mentioned in the definition, an accountant provides the financial information for investors. This is important because the information that accountants provide the public leads to people making investment decisions. For example, a husband and wife investing in a company based off of the financials provided by the accountant in order to save money for their son’s college fund. If they are provided with financials that make the company look more profitable than it truly is because the accountant cooked the books, then this family is entering into a dangerous investment that could ruin their son’s college fund and his future education. This shows the level of responsibility and ethical decision making that accountants are faced with. As a recent graduate of Providence College with an undergraduate in Accounting, I landed a job with a small automobile company. It is midnight and my boss is looking to sell the company. He has a meeting with Warren Buffet at 9a.m. tomorrow morning and has asked me to provide a spreadsheet with the company’s sales during the past six months. The ethical dilemma that I am faced with is that my boss has also asked me to account for the 15% of products that are typically returned due to defects and other reasons in our sales even though he knows that this will overstate our sales for the past six months by 15%. I am running out of time and I need to make a decision. First I am going to prioritize the ethical issues that I am faced with. Second, I am going to identify the viable options for addressing these issues and the ethical implications of the identified options and third, using ethical relativism, I am going to reach a definite resolution of these ethical issues by choosing what I think is the best option. The most important ethical issue I need to address is with my boss, followed by addressing the situation with Warren Buffet during the meeting. When it comes to addressing my boss, there is no middle ground and only two options that seem fitting to me. One, I can follow through with his request and account for the 15% of sales that should not be accounted for making my boss happy, or two I can confront my boss and explain to him why we should not account for these sales which will risk making him unhappy and me possibly getting fired. The ethical implication in following the first option would show that I have poor business ethics, and the ethical implication in following the second option would show that I have good business ethics. When it comes to addressing the situation with Warren Buffet, I also believe there is no middle ground and only two options that seem fitting to me. These options not only affect me individually, but the entire company and its stakeholders. One, we can take the risk and account for the 15% of sales that usually gets returned and provide them to Mr. Buffet in our meeting, which will also risk our fiduciary responsibility to our stakeholders. Or two, we can subtract the 15% from our sales and explain to Mr. Buffet that on average 15% of sales get returned for credit and that with his experience and talent he can improve our operations and already have a 15% greater return than what our sales over the past 6 months show. The ethical implication in following the first option would show that I have poor business ethics, and the ethical implication in following the second option would show that I have good business ethics.
The resolution that I have chosen for the ethical issue involving my boss is the second option; confronting my boss and explaining to him why I will not account for the 15% of revenue and risk getting fired. The reason for this is simply because it is morally wrong to do so. I am fresh out of college, have worked very hard to achieve my goal of becoming an accountant and have an extremely long working career ahead of me. I would tell this to my boss and explain that not only is it bad business ethics and unfair to Warren Buffet to cook these books, but that I didn’t work so hard in college to get caught up in a situation like this that could jeopardize my career as an accountant going forward. I would tell him that if he wants me to discount the 15% in revenues that get returned then I would be happy to do so for the meeting with Mr. Buffet, however I will not account for them and risk getting involved in a civil law suit for false financial information. If he wants to fire me, I am okay with that and will apply for jobs as an accountant at companies with better business ethics and better social responsibility. However, I will make sure that he does not follow through with this meeting and notify Mr. Buffet of the 15% in revenues that get returned for credit to prevent him from entering into a contract he most likely would not want to enter having known the true value of the company. The last thing that I want to do early in my career is lead business icon Warren buffet into making an investment because of false financials that I provided to him. This leads me to the ethical decision involving Warren Buffet. I would choose the second option mentioned earlier of subtracting those from our sales and explain to Mr. Buffet that on average 15% of our sales get returned for credit and that he should buy our company because with his experience he can improve our production operations. I believe that this is the right decision to make because otherwise we are putting not only our company at risk but the stakeholders as well. The stakeholders that are involved in this decision are the shareholders (if public), employees, customers, suppliers, managers, as well as the local community which it operates in. The interests that the employees have is that they want to continue to work for this company after Warren buys it without worrying a civil law suit will occur to jeopardize their jobs. The customers want to rely on us to supply automobile parts for them so that they can continue with their business activities. The suppliers and managers want to know that their jobs are safe after this deal is made. As for the community, if anything happens to this company because of the deal going through with false financials, there is a possibility that some of the workers who lose their jobs live in the community creating a negative effect on the economy in this community. As you can see, corporations hold a large social responsibility and my decisions are black and white. There is no way that I would follow through with the spreadsheet that my boss asked me to provide Mr. Buffet and I would make sure that the correct spreadsheet was provided during the meeting even if it meant losing my job because the bottom line is that providing this false financial information is morally and ethically wrong.

Legal Decision: Assuming that I followed my boss’s orders and that I overstated my revenues by 15% and that Mr. Buffet buys my company. Then assuming that the written contract for the sale of the company says: “Company represents and confirms that the financial information and spreadsheets given to Mr. Buffet were true, accurate, and complete.” Then, assuming that Mr. Buffet did not improve on the company’s production process and then discovers that the numbers were overstated because they did not account for typical returns, he can claim for breach of contract against our company or misrepresentation/fraud. However, he cannot claim for both because both are based on the same basic facts. In order for there to be a fraud claim in addition to the breach of contract claim, the fraud claim has to derive from a separate set of basic facts. In this case, the claim for breach of contract and misrepresentation/fraud are based off of the same facts. Therefore Mr. Buffet cannot claim for both, he must choose one. The court typically rules in case of breach of contract when both claims are based off the same facts because within the breach law suit there is usually some type of misrepresentation which caused the breach to occur. In order for Mr. Buffet to receive remedies he must show certain facts in order to be successful on his claims. Starting with breach of contract, Mr. Buffet has a claim for breach of contract against our company because in a contract, when one party breaches the contract by failing to perform his contractual duties, the law provides a remedy for the injured part. Therefore, due to the promise that was broken by my boss when stated in the contract, “Company represents and confirms that the financial information and spreadsheets given to Mr. Buffet were true, accurate, and complete”, Mr. Buffet can file a claim for breach of contract since our company provided him with false and inaccurate financials and spreadsheet information. Now, in order for Mr. Buffet to be successful on his claims he needs to prove that he performed under the agreement and the other party, being my company, did not. For this to occur all he has to do is show using the companies past financials that on average 15% of the revenues are credited, proving he was misrepresented in the valuation of the company and that my company breached the promise of providing accurate financials and spreadsheets. After showing this to the court he proves that he has the right to receive compensatory money damages since he held up his end of the contract when paying for the overstated 15%. The purpose of this is to place Mr. Buffet in a position as good as the one he would have occupied had the other party performed under the contract. The formula for this is; the loss of value - the cost avoided by injured party + incidental damages + consequential damages= compensatory damages. So, in this case let’s say that he bought the company for a million dollars. The loss of value would be the 15% more that Mr. Buffet paid for the company, which would be $150,000. This recovery is then reduced by any cost Mr. Buffet has avoided which in this case can be the operating expense changes he would have made had he known the true value of the company in order to reduce the 15% of those defected products and since we do not know how much this would have cost him, for purposes of completing this calculation let’s say he would have spent $50,000 on improving the company’s production process. This number which is $100,000 (150,000-50,000) then gets added by incidental damages which in this case would be zero because there are no incidental damages and so the number will stay at $100,000. Finally, this number gets added by consequential damages which includes lost profits and since we know that if Mr. Buffet had been notified of the true financials of the company he would have made changes to the company’s production process and possibly made a profit, we can say that he missed out on $50,000 more in profits leaving us with $150,000 in compensatory damages (150,000-50,000+0+50,000). Although the primary objective of contract remedies is to compensate the injured party for the loss resulting from the breach, it is impossible for any remedy to equal the promised performance. This is why Mr. Buffet may want to claim for misrepresentation/fraud instead of breach because in doing so he can have the entire contract voided. In order to prove that the defendant showed fraudulent misrepresentation Mr. Buffet must show that the defendant made a purposeful misrepresentation, that they intended on the plaintiff to rely on that misrepresentation, and that the plaintiff was negatively affected in some way. Here it will be easy for Mr. Buffet to show that my company purposefully misrepresented the financials in order to receive 15% more than what the company was truly worth and that it was intended for Mr. Buffet to rely on that misrepresentation so that he would find the deal more appealing. Finally, Mr. Buffet was negatively affected and is eligible to receive $150,000 in compensatory damages that we calculated earlier. Instead of filing for breach of contract to receive those damages, he can file for void of contract because a contract is voidable when it is entered under trickery and this case Mr. Buffet was tricked into signing the contract. Therefore, since he is the misrepresented party, he can void the entire contract and not have to deal with managing this company and its poor production operations.
Finally, assuming that Mr. Buffet sues my company in court, but my boss and Mr. Buffet decide to pursue alternative dispute resolutions, there are two resolutions available to them. These two alternate dispute resolutions are arbitration and mediation. How arbitration works is that there is a neutral person called an arbitrator who hears the arguments and evidence from each side and then decides on the outcome. There is binding arbitration and nonbinding arbitration. In binding arbitration the two parties in conflict decide to accept the arbitrator’s decision as final and so it cannot be taken to trail whereas in nonbinding arbitration if the parties not like the outcome they can decide to take it to trial. The pros of choosing arbitration over trial is that arbitration is more cost effective, there is a much quicker settlement, and since they are usually held in private the parties avoid unwanted publicity. The cons of arbitration are that if binding both parties give up their right to an appeal and the lack of transparency can cause the process to become biased. The second resolution is mediation and that is when a neutral third party selected by the disputing parties helps them to reach a voluntary agreement resolving their disagreement. The pros of mediation are that it is more cost effective than a trial and arbitration, it is not binding but voluntary so you are in control of approving the outcome, and that it will get settled much quicker than a trial. The cons of mediation are that since it is voluntary if one party decides not to sign then you waste the cost of paying the mediator, and you can agree to a bad agreement because you chose a bad mediator. In each of these cases you need to weigh the pros and cons to see which will be most successful for you.

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[ 1 ]. http://en.wikipedia.org/wiki/Accountant
[ 5 ]. http://www.stonelawpc.com/1295/when-breach-of-contract-crosses-into-fraud/