In to help design, manage and conceal the

In to help design, manage and conceal the

In Crazy Eddie Case, a former CPA, Sam E. Antar, was a key individual who helped Eddie Antar mastermind one of the largest securities frauds uncovered during the 1980s. Sam admitted that he had no empathy whatsoever for investors because he never concerned about morality or the suffering of those victims. Next I’ll analysis Crazy Eddie Case from ethical perspective and use Ethical Decision Making Model to evaluate Sam’s possible behaviors. 1. Frame the ethical issue: Should Sam join his cousin and become a willing participant in the massive fraud? 2.Gather all the facts: (1)Eddie had financed Sam’s college degree in accounting and hired him to serve as the CFO.

(2)Eddie kept skimming cash from his private business to avoid taxes. That money was divided among relatives. (3)After Crazy Eddie went public, in order to keep posting impressive operating results to maintain upward trend in the stock price, Eddie asked Sam to help design, manage and conceal the company’s fraudulent schemes. 3.

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Identify the stakeholders and obligations: (1)Sam: he should consider the consequences of his actions on others. 2)Eddie: Sam’s cousin, who hired him, trusted Sam and expected Sam to help him commit fraud. (3)Investors: expect an earning from investment and hope the stock price of Crazy Eddie can rise.

(4)SEC: has a right to expect a reliable financial report. (5)Customer: has a right to buy products with good quality and reasonable price. 4. Identify the relevant accounting ethics standards involved in the situation: (1)Honesty—fully and fairly disclosing the company’s financial condition in prepared financial statements. 2)Integrity—acting in accordance with principled behavior; not being swayed to do what another party induces you to do if you know it’s wrong. (3)The Public Interest—when there is conflict of interests, shareholders’ interests must be considered. 5.

Identify the operational issues: (1) Is it possible for Sam to persuade Eddie to stop committing accounting and securities fraud? (2)Are there internal controls that should have caught the mistakes? No in this case, because the company was closely held and collusion of top management can always circumvent internal controls. . Identify the accounting and auditing issue: (1) Crazy Eddie’s behavior of overstating year-end inventory is against GAAP requirements.

(2)Management has the responsibility to fairly present financial statements in accordance with GAAP. 7. List all the possible alternatives that you can or cannot do: (1)Keep going along with Eddie and fooling those investors. (2) Refuse to cooperate anymore and consider resigning from CFO’s position.

(3) Successfully persuading Eddie to stop committing fraud and to restate prior year statements. 4)Eddie refuses to stop the series of fraud, so Sam fully discloses the information to public. 8. Compare and weigh the alternatives: (1)It’s against the SEC laws and inconsistent with GAAP standards; unfair to stockholders; uncertainty about how long the company can cover up the deficiencies which keep growing with the company; honesty and integrity are challenged. (2)Loyalty to Eddie and the company is challenged. No more personal financial benefit can be generated from the rising stock price and the CFO position any more.Investors are still kept in the dark.

(3) The company’s stock price may drop significantly when investors learn about the truth; company may face bankruptcy due to loss of public confidence. The wealth of Eddie’s whole family will shrink seriously. (4) While Eddie may question Sam’s loyalty, he does take an ethical action and the public may respect him for his honesty. The company will be subject to extensive investigation. 9. Decide on a course of action: Full disclosure is the way to go, whether Eddie is willing to cooperate or not.

Sam should know that, as a CPA, he has the obligation to fairly present financial statement and he should be responsible for those investors. This is what others should do in similar situations for similar reasons. 10. Reflect on your decision: Sam should reason that though he seems to betray his family and company, actually he is saving them.

If the fraud is exposed to public later on by others, the potential consequences for the company at that time are much greater, and the punishment to his families will definitely be severer too.

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