Jumilla, Jasmine Cate COMA2B

Yee, Charlene
Monterola, Jishelle
Despabeladero, Bon Rian

Fraudulent Books

Laura has finally returned to her job as an accountant at Megatron Enterprises, a small family-
run hardware supplies chain, after a five-year extended maternity break. She has returned at an
important time in the fiscal year: tax season. As she reviews the books for the period, she was
gone, she notices little anomalies which suggest that Megatron has been reporting much less
income than they have actually made in the last two years.

Troubled by this, Laura approaches the company owner, Joseph, who comes clean and explains
that he has been altering the books because of a personal financial slump that he fell into
because of a gambling problem. Joseph promises that from now on, now that Laura is back, he
will no longer attempt to reduce his tax liability because he and the company are in a better
place now. However, he also makes clear to Laura that he cannot afford to pay the back taxes
and their penalties.

If Laura reports the fraud to the tax authorities, the company may close. If it comes out that she
did not report it. She will lose her license. What should Laura do?

(Case prepared by Gov. Jose B. Fernandez Ethics Center, Ateneo de Manila Univ., Philippines)

 Brief Background of the case

Laura returns to Megatron Enterprises as an accountant during tax season after taking a five-year
extended maternity leave, but when she examined the books, she found that Megatron had been
underreporting their income for the previous two years. She confronts Joseph, the business
owner, about the issue, and he confesses to be altering with the records in order to boost his
personal finances after suffering from gambling addiction. However, now that the business is
doing well, he promises to stop doing it. He stresses, however, that he is unable to pay the penalty
and past taxes. Laura is overwhelmed and unsure of whether to report the business, which may
close it or not, risking the loss of her license.
 Statement of the Problem
Should Laura stay silent about the inconsistency of the Megatron Enterprises to save the company
from permanently closing or should she speak up about the matter to keep her license?
 Areas of Consideration
- Megatron Enterprises’ business status
Based on the case itself, it is said that Joseph, the owner of the business, recently got
back up from his personal downfall (that may have affected the business in a negative
manner). With that knowledge, it is safe to say that the company’s funds cannot cover all
the penalties and evaded tax that Joseph had caused.
- Laura’s License
It is possible that Laura may choose to stay silent however it is also possible that
someone else might have discovered the made offense by Joseph, the owner. Since Laura
is known to be the one checking the books and the accountant of the business, Laura is
risking her own license to be terminated.
- Ethics and the Fundamental Principles of Business and Accounting
The principles and fundamental ideas of the accounting profession should be respected
by Laura, such as integrity, which means for fair dealing, honesty, and
straightforwardness. She shouldn't partake in offering any essential information that is
false or misleading. She must be unbiased to potential conflicts of interest or
unreasonable peer pressure to override her sound business or professional judgment.
- Laura’s Profession
if Laura failed to inform anyone of the irregularities at the firm. She may lose her
license, her career because the business might shut down, and other employers might be
reluctant to hire her since she was engaged in abnormalities and have no license. And
even if she did report to the authorities, the process of reporting anomalies may take time
because it involves legal matters that maybe taken into the court. She will lose her job
however still has her license intact.
 Alternative Courses of Action and Analysis
- Laura will stay silent
Though staying silent about the anomalies will indeed save the Megatron Enterprises
from shutting in the business, it will cost Laura’s ethical considerations and her dignity as
an accountant. Even if it was her brother’s wrongdoings, staying silent still makes her an
accomplice. And it is also possible that someone else might discover the buried
wrongdoings, which in fact will not only eliminate the enterprise and Laura’s job but it
will eliminate her license and her career as an accountant.
- Laura will report the anomalies
Reporting the anomalies of the company will terminate the company itself. In an
outside perspective it’s really not that big of a deal, however in Laura’s case, she might
terminate a family business. On a positive note, Laura will keep her license and her
dignity as an accountant.
 Conclusion & Recommendation
In order to prevent the company from closing, Laura should try to use the reserve
resources to generate the necessary funds to pay taxes. If this is not possible, however, she should
inform the tax authorities of the fraud because concealing such information is unethical both
personally and professionally. Joseph also mentioned to her that he and the business were in a
better situation, therefore they should strive to offset the tax debt and penalties to save the
business. If fraud is discovered, there is no other option because she risked losing her license.