Reference no: EM132508250 , Length: 10

Development of an Ethics Foundation: Case Study-Media Tech, Inc.

Identify the issues, define your ethical decision making model and ethical theory, explain the options and consequences, and pick the solution you would choose and why for the following situation:

1. Laura, controller and CPA, has been working hard to finish the year-end financial statements for Media Tech, Inc.
2. Media Tech Inc. provides social media relationships between users by focusing on up-to-the- minute communications on events-kind of like Instagram. This year is critical for the firm. The company is expected to make a profit after five years of product development and losses. In working to complete the year-end financials, Laura finds out that the figures are not logical. In fact, it seems that the company has overstated assets and income by $300 million. Based upon the brief investigation that she has been able to complete; it seems that both the CEO and CFO have signed and approved some documents that have inflated the numbers. The documents indicate a realization and recording of social media customer valuation of future sales into the present accounting period. Every social media customer for the firm generates advertising revenue equal to $5.00 per year. The documents indicate that the Social Media customer revenue for the year was increased to $7.00 per customer. The incremental revenue was booked on December 30. This leads to an increase in revenue of $300 million and accrual long term account receivable of $300 million.

Laura is pressured by time (a filing deadline of tomorrow to get the financial information finalized and printed for the shareholders' meeting) and the following other considerations:

1. The shareholders have been promised by the founders of the firm that an Initial Public Offering (IPO) of the company will be done within the next year. Morgan Stanley has been hired to provide the financial advice on the IPO issuance. The benefits to the stockholders are in the millions.
2. Laura is a go-getter; she wants to succeed in the company. She sees herself as a CFO in the future. Laura has been with the company for five years. She was one of the first employees hired. She has had excellent annual performance reviews. Upper management sees Laura as part of the team.
3. Laura is a CPA. She has joined the State CPA organization and the AICPA organization. She has viewed and passed the AICPA Code of Professional Conduct Certification.
4. Laura has personal pressures since she recently bought a new $500,000 house using all her savings as a down payment of $100,000. Further, her husband recently has taken an unpaid leave from his job due to a difficult illness and medical bills are mounting. He fell at work and needed serious back surgery. He needs special nursing care during the day. Laura helps at night as much as she can.
5. The banks have been patient in providing lending to High Tech, Inc., during the rough times but will declare the loans in default and demand immediate repayment if the numbers are not near break-even.

Answer the following questions:

Question 1: Using the AICPA Code of Professional Conduct, describe how this was either applied, misapplied or completely ignored. How would this code help Laura in her decision?

Question 2: Using the COSO Internal Control-Integrated Framework Executive Summary, describe the internal control weaknesses. Provide your recommendation for how to tighten up the controls for Media Tech based on the COSO summary.

Question 3: Explain some of the actions of Media Tech leadership and the audit team based on the Fraud Triangle. Explain how Laura is being pressured in this situation.

Question 4: Using a virtue ethics approach, explain the shortcomings and describe how these principles could have benefited Media Tech?

Question 5: How would the duty-based concepts of deontology help Laura in her decision?

Question 6: Describe how Media Tech might have altered their choices if they would have been operating in the mode of transparency and in the best interest of various stakeholders (stockholders, community, employees, creditors)?

Question 7: How might the consequentialism ethical theory have influenced the decision by the CEO and CFO?

Question 8: What might be the criminal and punitive damages under SOX to upper management if they certify this year's financial statements?

Question 9: What could be the result for Laura if she goes along with the current statement? What could be the result if she opposes leadership?

Question 10: What are your final suggestions to Laura?