Controllership in Accounting
Topic: Revenue & Misrepresentation byClients
Characters: Rachel Hanson, Senior in CPA firm
Jim Thompson, Owner/manager of Fashion Line
Sharon, part-time bookkeeper of Fashion Line
In addition to the usual mix of compilation, review and auditclients for which Rachel Hunt
serves as a senior in a small office of a regional CPA firm, shehas been assigned a new
client that recently engaged the firm. Fashion Line, anincorporated retail outlet, is a thriving
local store. The business is run by a single owner/manager, JimThompson, who makes
all major decisions. The business has not previously used theservices of a CPA firm. In
addition to preparation of financial statements, the CPA firmwill handle tax returns for the
business.
At her Line visit to the client’s office, Rachel is introducedto Sharon, the part-time
bookkeeper who is also a full-time accounting student at thelocal university. At a
subsequent meeting, Sharon confides to Rachel that she found thejob at the beginning of the
semester after an extensive search. Sharon really needs themoney to help finance her
education, and feels lucky to have found a good-paying jobduring the current economic
downturn. Feeling that Rachel is someone she can talk to and getadvice from, Sharon
describes a situation that has been on her mind for some timenow.
Sharon’s concern relates to the handling of sales revenues. Whenmonies from sales revenues
are counted and deposited on a weekly basis, a chart is filledout with categories carefully
delineating the type of payment: cash, checks, American Express,or Visa/Mastercard.
Sharon’s employer, after depositing the weekly total, bringsthis chart back with his own
written-in total of the actual amount deposited.
After looking over some of these weekly deposit chats, Sharonnoticed that $500 cash was
missing from each deposit. After a more thorough inspection ofmonthly tax documents that
Jim Thompson has filled out, Sharon noticed that the reportedmonthly gross revenue was
$2,000 less than what had been actually counted.
The employer is the only person handling the money after it hasbeen counted. He is also the
only one to deposit the money. When Sharon asked Mr. Thompsonabout revenue not being
reported for tax purposes, he assured her that every dollar ofincome was reported on the tax
forms. Furthermore, Jim asserted, since Sharon wasn’t the personwho signed the forms,
she shouldn’t be concerned.
Answer the following question from the case above :-
1. What are the relevant facts of the case?
2. What, if any, are the ethical issues?
3. Who are the stakeholders?
4. What are the possible alternatives including any ethicalconcerns?
5. What are the practical constraints?
6. What action(s) should be taken?
