According to this reading
Cooking the Books
Alexis Babb
John is CFO at a venture
According to this reading
Cooking the Books
Alexis Babb
John is CFO at a venture-backed tech startup with revenues of $20 million
and approximately 80 employees. He’s worked at the company for several
years, and now reports to Ralph, the company’s newly hired CEO.
The company had been doing really well, but recently big customers have
been placing fewer orders and Ralph is feeling pressure to show growth. This
pressure is amplified because the company is venture-backed, and the
investors expect results. While the company did well in the first round of
funding, if they don’t perform now, they may have trouble with gaining
sufficient funding in the second round, which could mean the end of the
company.
All of this was on John’s mind when Ralph came to him about recording a
major order that was still under negotiation. The deal had not gone through,
although both parties expected to complete the deal in the next week. With
the current quarter ending in the next few days, including this order would
give a significant boost to the company’s financial reports. Nonetheless,
under the generally accepted accounting principles (GAAP), it is clear that
this order does not qualify as revenue.
Even so, Ralph was adamant about John booking the order, which could
make all the difference in the company’s ability to stay afloat. John knew that
doing so would constitute fraud; particularly because the Sarbanes Oxley Act
requires the CEO and CFO to sign off on all quarterly reports. At the same
time, John knew that this order could make all the difference.
-What are the ethical concerns raised in this situation? Please describe
