Ethics of Financial Statement Analysis
Fitness Mania is a small technology company that specializes in personal fitness mobile applications. The three founders have been working hard at the company for the last two years since they founded Fitness Mania. The owners of Fitness Mania want to expand their lines of business to include personal fitness trackers. To get into the manufacturing and sale of personal fitness trackers, Fitness Mania will need to raise approximately $5 million from additional investors. The CEO of Fitness Mania is making a presentation to a group of potential investors who are interested in funding the new fitness tracker project. This presentation could make or break Fitness Mania, making it a high risk presentation. The CEO knows that while several of Fitness Mania’s ratios are strong, it still has some financial difficulties. Some of the Fitness Mania ratios would raise red flags for potential investors.
The controller of Fitness Mania is Tom Black. Tom enjoys working for the new company, and he strongly believes in Fitness Mania’s mission, which is to improve fitness while making it fun. Fitness Mania products can change the lives of the people who use them to get fitter. The CEO of Fitness Mania asks Tom to prepare a report for investors that emphasizes the strong ratings while burying the weaker ratings deep in the report.
The CEO of Fitness Mania asks Tom to prepare a report for investors that emphasizes the strong ratings while burying the weaker ratings at the bottom of the report.
Tom prepares a report emphasizing the strong reasons. The weaker indices are buried deep in the report. Tom has included a lot of extra data in the report to help camouflage those weaker ratings. Tom also went a step further in preparing the report: he changed some of the weaker ratios to make them appear stronger.
Tom rationalizes his actions by thinking that the revised report contributes to a greater good. Customers who use your fitness software products are likely to become healthier and live longer. He thinks that some adjustments to the report are relatively minor compared to the benefits that would be realized from the new Fitness Mania product offerings if potential investors decide to invest in Fitness Mania.
Requirements
Using the IMA Statement of Ethical Professional Practice (Annex 1-7) as an ethical framework, he answers the following questions:
- What is(are) the ethical issue(s) in this situation?
- What are Tom’s responsibilities as a management accountant
