IT WAS JUST A CARELESS MISTAKE: A CASE STUDY OF ETHICAL DILEMMA OF

DAVID

Presented to the Faculty of

Department of Accounting Education
UM Tagum College,Tagum City

In Partial Fulfillment
Of the Requirements for the course
Governance, Business Ethics, Risk Management & Internal
(ACC 325)

(paki edit nalang po sa inyo name diri if mali po ug ibutang sab diay inyong middle initial

Diana A. Baba
Eden Mae Batila
Jeni Ross J.Fino
Hanna Leah H. Lapastora
Christopher Montojo
Chrisvil Sefuentes
Resyl Jane B. Sevilla

October 2023
Executive Summary

‘ It was just a careless mistake’ is a clip in which it shows a problem highlighting the
inconvenience made by the company, a total of $4.5 million cost of returned goods.
However, the problem was immediately addressed in which they found remedies on
how to handle the situation. Hence, there is a great possibility that it will lower their
sales and bonus of the employees.

Background of the Study

Almost all of us make mistakes in our life, some may be defined as a ‘careless
mistake’ while some are mistakes that are meant to be an absence of integrity. This
concept does not just only evolve to the dark side of the story but also opens a way on
how we view the situation with weighing matters before concluding. As we go through,
ethics is always on our way and affects how we decide to see the goodness in things.
In this study, we aim for a better understanding on how we can possibly deal with a
careless mistake that was committed while protecting the reputation of the company as
well as the employees, specifically the sales department. Just like the Finance Director-
David, who was alerted from the returned goods near the end of the year. Deals the
situation by aiding the problem through proposing adjustments to the financial statement
in order to reflect the return. However, his proposal is inflexible with the company. .
Finding out the unethical threats such as; Self-interest which brought impact in
adjustment and decrease of bonuses and Intimidation-threat as there’s a planning of
insisting to Top management without minding the possible loss. It draws a conclusion
that it will truly matter and in between the careless and or absence of integrity.

Case Evaluation
a. Fraudulent Financial Reporting
Johnny, the Sales Director made an intentional misrepresentation of the
financial statement. Johnny accounted for staff error in which he explained that it
was shipped 50,000 units instead of 5,000 units and put sales adjustment to
January next year rather than in December. This is manipulation of records,
 falsification of transactions or the intentional misapplication of various accounting
principles.
b. Intimidation threat
Johnny, the sales director, insisted that David shouldn't adjust the sales
report regarding the $4.5 million returned goods as it was just a staff error.
Johnny Threatens David that if he refuses to cooperate and the report was
adjusted they would consult the CEO regarding the issue applying pressure on
David. Using threats to manipulate information that harms professional
reputation, which can compromise the integrity of financial reporting.
c. Self-interest threat
Johnny displayed a clear conflict of interest by falsifying sales of 50,000
units, disregarding the fact that only 5,000 units were sold and 45,000 units were
returned, resulting in a $4.5 million downturn in sales in pursuit of a personal
bonus. This unethical behavior undermines the trust and integrity in the
accounting process to pursue personal interest.
d. Ethical Dilemma
David is facing an ethical dilemma where he must decide whether to
adjust the sales statement to rectify an error, even if doing so might compromise
his bonus and relationship with his colleagues. Prioritizing honesty, integrity and
recognizing that maintaining the accuracy of financial records is essential for
ethical business practices and long-term trustworthiness.
e. Staff Error
A careless mistake made by the staff, shipping 50,000 units instead of
5,000 units, could have significant ethical and financial repercussions . Ethically,
it raises concerns about attention to detail and quality control within the company,
potentially eroding trust with customers and stakeholders. Financially, the
company may face increased costs due to the error, impacting profitability and,
consequently shareholders' returns.
Proposed Solutions
Ethics is especially important in preparing financial reports because users of
these reports must depend on the good faith of the people involved in their preparation.
Users have no other assurance that the reports are accurate and fully disclose all
relevant facts. Getting involved in fraudulency in preparing the financial statement to
manipulate records and falsify transactions which trigger by self-interest threats as well
as execute intimidation threats. Because of the intentional misleading of the financial
report to meet bonus projections there is an ethical dilemma.
To create solutions, we have to consider the facts, what are the ethical issues,
what moral principles, values or norms are relevant to the decision, what are the
alternative courses of action for the decision maker, determine what are the best
solutions and choose suitable actions for the situation. Additionally, in making decisions
and solving cases we must consider the consequences of such actions as well. We
have four (4) suggested solutions provided below:

Consult the audit committee

If the pressure from Johnny intensifies David should consider consulting the audit
committee or any person that is in charge of governance in the organization. He should
seek their guidance on what he should do to ensure that any decision that will be made
is aligned with the accounting standards and principles through presenting the current
situation to them. David should hold to be true and fair and consult the audit committee
since the audit committee makes sure that the proper procedures are in place for the
detection and prevention of fraud, such as financial statement fraud, asset
misappropriation, and corruption. The audit committee collaborates with management to
ensure that all required measures are taken to eradicate fraud (CFI Team, 2020). In
such cases, it needs to resolve and develop strong organization ethics programs that
communicate expected behavior, candor with management and immediate attention to
issues (Weisbaum J., 2016).
When management and those responsible for oversight of the financial reporting
process fulfill those responsibilities, the opportunities to commit fraud can be reduced
significantly (Weisbaum J., 2016). Because a model of fraud detection may not provide
the best prediction when using merely historical financial statement data to identify fraud
(Sharma and Panigrahi, 2012). Hence, studies may consider including the analysis of
governance factors since it has been argued that the deficiencies in corporate
governance mechanisms have led to the wave of corporate financial scandals (Fich &
Shivdasani, 2007)

Address or communicate with the Chief Executive Officer (CEO)

David must engage in an open communication with the CEO through presenting
the current situation and explaining the conflicts therein, the morals or standards that
will be affected, and seeking the necessary solution that is upright in the situation. In
connection with this, the study of Cindy Sing-Bik and Rita Gill Singh (2014) believes that
communication is important as a strategic tool for corporate communication to engage
and enhance the understanding between the CEO and stakeholders in order to function
properly and be able to compete in this digital age. In addition, effective corporate
communication will accomplish business transactions successfully (Sing-Bik and Gill
Singh, 2014).

Employee withdrawal
In the worst scenario, David may think over leaving the company to disassociate
the unadjusted financial report made by Johnny. People can choose whether or not to
be engaged and for someone to put their heart to work, who firmly believes in the value
and objective of the organization. Same with David who holds to be rightful that
accounts should always be true and fair (Jatho K., 2017). If such a notion has ever
crossed David’s mind at work, if he probably thought about either clarifying the issue or
keeping your mouth shut. Many times, people tend to keep their mouths shut because
of habit and self-preservation (Glaser J., 2015). David insisted Johnny to adjust the
financial report however, Johnny threatens David if he refuses to cooperate with the
aforesaid issue. Therefore, David may consider resigning to disengage the misleading
information because whatever it takes, it’s the same.
“Resignation is the voluntary act of an employee who is in a situation where one
believes that personal reasons cannot be sacrificed in favor of the exigency of the
service, and one has no other choice but to dissociate oneself from employment.”
(Pascua v. Bank Wise Inc., 2018).

Righteous disclosure of financial report

All relevant parties involved should be made aware of David’s ethical dilemma as
the Finance Director dealing with the return of goods by a major customer, Super Pte
Ltd. This awareness can promote transparency and ethical decision making within the
organization. “Transparency is a cornerstone of ethical corporate behavior. Accurate
financial reporting is vital for transparency ".-From Obscurity to Clarity: How
Transparency Revolutionizes Sustainability Reporting. In this situation, where David, the
Finance Director, is facing opposition due to the potential decrease in bonuses linked to
a sales return, it's important to consider the ethical implications.
While bonuses are important, ethical principles should guide decision-making.
"Ethical conduct in financial reporting is paramount. Even in challenging circumstances,
maintaining transparency and adhering to accounting standards are fundamental to the
credibility and trustworthiness of a company's financial statements." - International
Ethics Standards Board for Accountants, IESBA. Safeguarding ethical conduct in the
situation involving David, the Finance Director, is crucial to maintaining the company's
integrity and reputation.David should consult legal and regulatory guidance to ensure
that any proposed adjustments to the financial statements align with applicable laws
and accounting standards. This safeguards the company from legal risks.

Conclusion
In conclusion, David, the Finance Director, faced a challenging situation when
major customer Super Pte Ltd returned most of the goods shipped at the end of the last
year. Despite stiff opposition from within his company, David demonstrated a
commitment to handling the situation ethically. His ethical approach included a careful
review of documentation, consultation with experts, transparency in communication, and
a willingness to address concerns raised by colleagues. David prioritized adherence to
accounting standards and maintained a record of all key decisions and discussions.
Moreover, he was prepared to utilize whistleblower protections if faced with unethical
pressure.
Ultimately, by upholding ethical principles, David worked toward ensuring
accurate financial reporting and maintaining the company's integrity. While facing
opposition, he showcased ethical leadership and a commitment to finding a resolution
that served the best interests of the company and its stakeholders. This case illustrates
the importance of ethical conduct and transparency in financial decision-making, even in
the face of challenges.

Recommendation
Johnny should prioritize ethical conduct, transparency, and adherence to accounting
standards while addressing the issue of returned goods and proposed adjustments to
the financial statements. His actions should be well-documented and guided by the best
interests of the company and its stakeholders. Johnny should first review the company's
policies and accounting standards to ensure he is following the correct procedures for
handling returns and adjustments to financial statements. Johnny should thoroughly
document all decisions and reasoning behind the proposed adjustments. This
documentation will serve as a record of the company's ethical approach to the issue.

Implementation

In response to the dilemma situation that David is facing regarding the

appropriation of the records of the sales figures as it will affect both his and the sales
team’s bonuses, an evaluation was conducted to find the issues in the study. The
evaluation revealed that the careless mistake of a staff in shipping 50,000 units instead
of 5,000 units is causing a difficulty and resulting in an error in the records of sales
statements. With the objective of correcting the record of sales, a strategy is made
centering in consulting the audit committee so that the honesty, integrity, and
maintaining the accuracy of financial records will be prioritized. Initial steps will involve a
thorough evaluation of all relevant documents, including sales records and internal
communication. This information will be put into a thorough summary describing the
moral issues and their effects on financial reporting. The situation will then be
thoroughly explained, emphasizing the ethical dilemmas present, such as potential
fraudulent reporting, intimidation methods, self-interest conflicts, ethical dilemma, and
staff error, in a meeting with the Audit Committee that will be requested. There will be
suggested solutions presented, supported by transparency and compliance to
accounting standards.

Open discussion will be encouraged during the meeting so that the Audit
Committee can offer constructive criticism and guidance. To ensure compliance with
accounting standards and ethical principles, specific advice on the best course of action
will be requested. Comprehensive notes will be taken throughout the meeting to record
the Committee's comments, suggestions, and any assigned action items. Following the
meeting, the suggested solutions will be modified according to the implications of the
comments received. The meeting will be publicly reported on, along with the
Committee's recommendations and any amended action plans. We'll stay in touch with
the Audit Committee, providing updates on our progress and, if necessary, seeking
additional guidance. Lastly, to ensure a structured and open approach to addressing the
financial reporting difficulty, all material associated with this topic will be safely archived
for future reference. The reputation and financial integrity of the company are ultimately
protected by this procedure, which places a high priority on ethical behavior, integrity,
and compliance to accounting rules.
 References

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