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RST Inc. completed its fiscal year on December 31. Near the end of the fiscal year, the companys internal audit department determined that an important internal control procedure had not been functioning properly. The head of internal audit department, JT, reported the internal control failure to the companys Treasurer. The Treasurer reported the failure to Chief Financial Officer (CFO). After discussing the issue, CFO instructed the Treasurer not to inform the external auditors of the internal control failure and to fix the problem quietly after the end of the fiscal year.

The external auditors did not discover the internal failure during their audit. In March, after the audit was complete, the company released its audited annual report, including associated reports by management. The CFO authorized the release of Managements Report on Internal Control, which stated that the management team believed that the companys internal controls were effective during the period covered by the annual report.

Did JT, Treasurer, and or CFO behave ethically in this situation? If not, what each one of them, as an individual, should have done? What all of them, as a team, should have done? Explain your answer. Discuss the ethical and professional issues in this situation. (You can makeup various assumptions and answer based upon those assumptions.)

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