The board of directors has instructed the CFO, Tom Washa, to change the preliminary financial report that showed a $100,000 loss for the company into a profit. The CFO faces an ethical dilemma as changing the numbers would be unethical and could damage the company's reputation. Key stakeholders like employees and investors also have an interest in accurate financial reporting. The CFO will need to carefully consider his responsibilities and possible consequences when responding to the board's request.

1. Running Head: PROFESSIONAL ETHICS PAPER-SCENARIO 4 1
PROFESSIONAL ETHICS PAPER: SCENARIO 4
Lenora Lynn Knaack
Minnesota School of Business/Business Ethics

2. PROFESSIONAL ETHICS PAPER-SCENARIO 4 2
Abstract
The scenario four pertains to Tom Washa the chief financial officer (CFO) for Dallas Company.
It is January 10, and Tom has just finished compiling the preliminary financial results for the
most recent fiscal year that ended on December 31. The preliminary results indicate that Dallas
lost $100,000 during the year. Dallas is a large company (with assets in excess of $1 billion), so
the $100,000 loss is essentially the same as zero. However, the board of directors thinks that it
conveys a very negative image for the Dallas Company to report a loss for the year, even if the
loss amount is very small. As a result, they have instructed Tom to look at the numbers again
and see if he can turn this loss into profit. As the CFO, what things can Tom do to turn this loss
into a profit? What concerns should Tom have?
In this paper I will explicate the events that will evolve as a company’s board of directors
instructs the company’s chief financial officer-Tom Washa-to review and possibly revise the
numbers of the preliminary annual financial results. It will show how ethics will play a
significant decision in how changing a financial report could impact the company and how any
future decisions made by the CFO could affect the outcome of future reports.

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Preliminary report shows possibility of financial loss
First of all, this is a preliminary report; in the scenario it doesn’t explain if this has been
the first time that the company has experienced this type of loss. Secondly, the board of
directors concern with the loss of only .001%, when the company has assets in excess of $1
billion, is not that significant of a loss for them to be concerned with. Is there a possibility that
the board of directors has suspicion that the CFO is dipping into the company funds?
The board of directors has placed CFO, Tom Washa at an unfair advantage by requesting
he do something that may be against his principles and is overall unethical. Who’s to say that
there isn’t someone illegally accessing company funds, which could be someone on the board of
directors? If I was the CFO, this is something that I would be questioning in the back of my
mind since they are asking that Mr. Washa to do something to change the loss into a profit.
From Mr. Washa’s viewpoint he should comply with the request, as he has been asked to
do to see if numbers of the preliminary report may have been transposed. He does not want to
immediately consider the possibility of any one person on the board of directors that could be
behaving in an unethical manner. Unfortunately with what has been happening with large
companies, it never hurts to be careful and check into some possibilities of unethical behavior, if
he cannot find any discrepancies in the financial reports. Especially, if Mr. Washa’s reputation
could be at stake if anything came to light in the financial report that was found to be
unsupported by lack of documentation by changing any numbers.
According to eHow Money, a website that provides information on business and finance,
an article by Hunkar Ozyasar on “Operating Profit Margin When There Is an Operating Loss”
states that, “If a firm's operating profit is negative, the operating margin is usually not reported.
The operating margin for a company who shows an operating loss is usually reported as N/A or

4. PROFESSIONAL ETHICS PAPER-SCENARIO 4 4
Not Applicable. Financial analysts or management can, however, divide the negative income
figure by sales and report a negative figure. If, for instance, the firm has reported an operating
loss of $2 million on sales of $50 million, the operating margin can be reported as either N/A or
two divided by 50 = 0.04, which can also be expressed as negative 4 percent.”
Unfortunately, there could be consequences to that, “An operating loss means that the firm
will likely report a significant net loss as well. The net income tends to be smaller than the operating
income as items such as interest expenses and tax liabilities must be subtracted. In fact,many firms report
a modest operating income yet still end up with a net loss. An operating loss also means that the firm's
troubles cannot be explained by imprudent borrowing practices or unfair tax rates and that the core
operations must be re-evaluated.” (Ozyasar,2011).
Ethical dilemma from CFO’s perspective
From the aspect of the CFO, Mr. Tom Washa, this must be a battle of the wills for
him. What I mean by this is that you want to disagree with these people, yet he is probably not
sure how to respectfully address it other than to go back and review the numbers and see if he
may have overlooked something. How can a CFO perform his duties responsibly when he his
asked to do something that he feels may not be in the best interest of the company or his own,
since he is the chief financial officer and it is his name that he signs on these reports? Maybe the
board of directors is testing Mr. Washa to see if he will do as he is told by them or they may
want to see if he has something to hide. If that is not the case he may question it and explain to
them he feels it is against his better judgment.
In Chapter 1, of Ethical Decision and Making and Cases, The Importance of Business
Ethics, ethics contribute to employee commitment. Employee commitment comes from
employees who believe their future is tied to that of the organization and their willingness to
make personal sacrifices for the organization. (p. 18).

5. PROFESSIONAL ETHICS PAPER-SCENARIO 4 5
An article by Stead, Worrell, and Stead (n.d.), states that there is little doubt that
personality and background will influence a person’s ethical system-his or her system of ethical
philosophies and behavioral patterns. Another set of factors influencing the ethical behaviors of
employees exists in the organizational context. Researchers have concluded that a variety of
organizational variables influence ethical behavior among employees. Further, because of their
immediate situational impact on employee behavior, have been shown to have a strong direct
influence on specific ethical decisions made by employees, usually overwhelming individual
variables such as personality and socialization.
Board of Directors concern
In an excerpt from an article by Alexander F. Brigham and Stefan Linssen (2008) on the
website known as Ethisphere, “Today, corporations, mainly financial institutions, have begun
reenacting the same shenanigans that caused the 2001 fiasco—moving liabilities off the balance
sheets and convincing accounting firms to bless these maneuvers, as well as holding assets at
inflated values versus market pricing. The fact that many of these institutions were later required
to return those assets back onto their balance sheets underscores the fraudulent and misleading
original intent of these firms.”
As stated in Chapter 1 of Ethical Decision and Making and Cases, The Importance of
Business Ethics. “Ample evidence shows that being ethical pays off with better performance.”
“A company cannot nurture and develop an ethical culture unless it has achieved adequate
financial performance in terms of profits. (p. 21). Ethical Culture is described as the component
of corporate culture that captures rules and principles that an organization defines as appropriate
conduct. The reputation of a company has a major effect on its relationships with employees,

6. PROFESSIONAL ETHICS PAPER-SCENARIO 4 6
investors, customers, and many other parties and thus has the potential to affect its bottom line.
(p. 25).
Another article on eHow.com contributed by Corr S. Pondent (n.d.) discusses how the
board of directors is responsible for their behavior because they are the ones who oversee
company’s affairs, and are responsible for following certain standards in how they conduct
themselves, considering that their activities could have an impact on the company. “A code of
conduct gives the board an idea about what is expected of them in terms of ethical behavior. It
helps them deal with situations of conflict and could also set up a framework for them to report
unethical behavior.”
Stakeholders and their potential interest
The impact of the decision to change the numbers on the financial report could have
some devastating consequences to the stakeholders. The stakeholders have an important interest
in the company, especially if it could affect their employment and the future of the company.
The proper assessment of the power held by a given stakeholder community also requires
an evaluation of the extent to which that community can collaborate with others to pressure the
firm. Managers can identify relevant stakeholders who may be affected by or may influence the
development of organizational policy. Stakeholders have some level of power over a business
because they are in the position to withhold, or at least threaten to withhold, organizational
resources. (Ferrell, et al., p. 48).
In a paper written by Elena F. Perez Carrillo for Corporate Governance: Shareholders’
Interest’s and Other Stakeholders’ Interest’s (p. 99), she stated in her paper that, “Corporate
managers are, in accordance of this view, to reconcile stakeholders and shareholders’ needs and
interests though strategies capable to raising both economic and social and environmental

7. PROFESSIONAL ETHICS PAPER-SCENARIO 4 7
standards. If the decision making process within corporate hierarchies were captured and
controlled by one set of stakeholders, other stakeholders might eventually cease to cooperate, to
withhold inputs in the future, and try to withdraw inputs over which they have influence. The
complex nature of modern corporations implies that shareholders investment is better protected
though the care and respect of those “external” assets. In the absence of imperative laws, lack of
respect for social, environment issues can have disastrous consequences for the Corporation’s
activities and profitability.
Corporate Responsibility
Regarding the corporate responsibility of a company pertaining to relevant laws, the
following has been retrieved from Reference for Business regarding the importance of annual
reports, “Annual reports are public statements of an organization's financial performance that are
distributed to company stockholders and other interested parties. An annual report assesses the
preceding fiscal year's operations and discusses the management's view of the upcoming year”.
“In the United States, the U.S. Securities and Exchange Commission (SEC) require most
publicly traded companies to file an annual report known as form 10-K”.
notes to the statements providing details for various line items
the company for the past two years
brief description of the company's business in the most recent year, a description that should
give a general understanding of the company.
“Key to the legal requirements is financial disclosures and other information that
investors may use to evaluate the company's fiscal health. This aspect is fundamental to the

8. PROFESSIONAL ETHICS PAPER-SCENARIO 4 8
annual report's existence, and, in fact, if a company publishes in its report a statistical error of
more than 10 percent, it is required to submit an adjusted report”.
In Part 3, Chapter 7, of The Decision Making Progress states that, “Compliance based
cultures use their legal departments to determine ethics. They include the auditing department to
create rules and procedures as well as monitoring the process. Codes of conduct are established,
compliance is the focus, and auditors and lawyers establish the framework so as to attempt to
match what different laws want”. “A traditional ethical compliance culture usually has an audit
and financial focus; a transaction-based, compliance objective with policies and procedures; and
multiyear audit coverage within a budgeted cost center with career auditors. The compliance
approach is good in the short term at presenting to management, stakeholders, and legal agencies
that adherence to laws, rules, and the intent of compliance is fulfilled. A problem in the
compliance approach is its lack of long-term focus on values and integrity”. (p. 188).
Applying Professional Society Code of Conduct to dilemma
According to EHow Money, “Guidelines in the professional code of conduct help steer
professionals away from decisions or situations that could damage public trust, thus hampering
the ability of other people in the same profession to work effectively”. “Defining a profession's
role in a professional code of conduct frames expectations for performance and ethical behavior
within a context of broader goals, people with a clear understanding of their profession's broader
goals tend to see connections between individual choices and collective achievement.”
In the Code of Ethics for Professional Accountants revised July 2006 mandated by the
International Ethics Standards Board for Accountants in Section 100 regarding Fundamental
Principles:

9. PROFESSIONAL ETHICS PAPER-SCENARIO 4 9
100.4 A professional accountant is required to comply with the following fundamental
principles:
(a) Integrity- A professional accountant should be straightforward and honest in all
professional and business relationships.
(b) Objectivity-A professional accountant should not allow bias, conflict of interest or
undue influence of others to override professional or business judgments.
(c) Professional Competence and Due Care-A professional accountant has a continuing
duty to maintain professional knowledge and skill at the level required to ensure that a
client or employer receives competent professional service based on current
developments in practice, legislation and techniques. A professional accountant should
act diligently and in accordance with applicable technical and professional standards
when providing professional services.∗
(d) Confidentiality-A professional accountant should respect the confidentiality of
information acquired as a result of professional and business relationships and should not
disclose any such information to third parties without proper and specific authority unless
here is a legal or professional right or duty to disclose. Confidential information acquired
as a result of professional and business relationships should not be used for the personal
advantage of the professional accountant or third parties.
(e) Professional Behavior-A professional accountant should comply with relevant laws
and regulations and should avoid any action that discredits the profession.
The importance of the ethics is to establish guidelines for the accountant to follow to
behave in an ethical manner and to continue this behavior to create this environment for the

10. PROFESSIONAL ETHICS PAPER-SCENARIO 4 10
welfare of the corporation the accountant is involved with.
Conclusion
Therefore in conclusion of the dilemma for the CFO, Mr. Washa and the Dallas
Company’s board of directors. The appearance of the preliminary report is just that …
preliminary. It cannot be assumed that the public will consider this as conveying a negative
image for the company. To the stakeholders and shareholders, as long as there is gainful
employment for the stakeholders and the shareholders are receiving a return on their investment,
the board of directors should not have a need for such a dramatic adjustment to be made on the
report.
The Dallas Company will have opportunity in the following year to make any necessary
changes to the company to change this concern. As long as the board of directors conveys this
concern to their stakeholders and shareholders it should not appear as if the company has
something to hide from them. The company will continue to operate has it has been and review,
where necessary, any changes that will need to take place in the future. Since it appears that the
company has a fair and honest work environment for their stakeholders.

11. PROFESSIONAL ETHICS PAPER-SCENARIO 4 11
References
Brigham, A.F., Linssen, S. (2008, December 31). What went wrong ethically in the economic
collapse, how a mirror can help in the crisis. Retrieved on March 4, 2012 from
http://ethisphere.com/what-went-wrong-ethically-in-the-economic-collapse/
Drew, B., (n.d.). The purpose of a professional code of conduct. Retrieved March 10, 2012 from
http://www.ehow.com/about_6684941_purpose-professional-code-conduct.html
Ferrell, O.C., Fraedrich, J., Ferrell, L. (2011). Business Ethics Ethical Decision Making and
Cases. (8th ed). Mason, Oh.: South Western Cengage Learning.
International Ethics Standards Board for Accountants. (2006). Code of ethics for professional
accountants. International Federation of Accountants, New York, NY. Retrieved
March 12, 2012 from http://ethics.iit.edu/codes/code-of-ethics-for-professi-1.pdf
Ozyasar, H.(2011, June 14). Operating profit margin when there is an operating loss. Retrieved
on March 4, 2012 from http://www.ehow.com/info_8591429_operating-margin-there-
operating-loss.html
Perez Carrillo, E. F., (2007). Corporate governance: shareholders’ interests and other
stakeholders’ interests. Corporate Ownership & Control Volume 4, Issue 4, Pg. 99.
Retrieved March 10, 2012 from
http://www.virtusinterpress.com/additional_files/journ_coc/full-text-papers-open-
access/Paper006.pdf
Pondent, C, S. (n.d.). Board of director’s code of conduct. Retrieved on March 4, 2012 from
Board of DirectorsCode of Conduct| eHow.com
Reference for Business (n.d.). Annual reports. Encyclopedia for business, 2nd ed. Retrieved
March 10, 2012 from http://www.referenceforbusiness.com/encyclopedia/A-Ar/Annual-
Reports.html

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References
Stead, W.E., Worrell, D.L., Stead, J.G. (n.d.). An integrative model for understanding and
managing ethical behavior in business organizations. (p. 234-235) Retrieved March 5,
2012 from http://steadandstead.com/articles/integrative_model.pdf