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Case 2


“Yeah, I know all the details weren’t completed until January 2, 2011, but we agreed on the transaction on December 30, 2010.  By my way of reasoning, it’s a continuation transaction and the $12 million revenue belongs in the results for 2010.”

The previous comment was made by Carl Land, the chief financial officer, of Family Games, Inc.  The company has sales of about $50 million each year from a variety of manufactured board and electronic games that are designed for use by the entire family.  However, during the past two years the company had a net loss due to cost cutting measures that were necessary to compete with overseas manufacturers and distributors.

Land made the comment to Helen Strom, the controller of Family Games, after Strom had expressed her concern that since the lawyers did not sign off on the transaction until January 2, the revenue should not be recorded in 2010.  Strom emphasized that the product was not shipped until January 2 and there was no way of justifying its inclusion in the previous years’ operating results.

Land felt Strom was being hyper-technical since the merchandise had been placed on the carrier (truck) on December 31, 2010. The items weren’t shipped until January 2 because of the holiday. “Listen, Helen, this comes from the top.  The big boss said we need to have the $12 million recorded in the results for 2010.”

“I don’t get it,” Helen said to Land.  “Why the pressure?”

“The boss wants to increase his performance bonus by increasing earnings in 2010.   Apparently, he lost some money in Vegas over the Christmas weekend and left a sizeable “I Owe U” at the casino.”  Land responded.

Helen just shook her head.  She doesn’t like the idea of operating results being manipulated based on the personal needs of the chief executive officer.  She knows that the CEO has a gambling problem.  It had happened before.  The difference this time is it appears to have affected company operations and she is being asked to do something that she knows is wrong.

“I can’t change the facts,” said Helen.

“All you have to do is backdate the sales invoice to December 30 when final agreement was reached.”  Land responded.  “As I said before, just think of it as a revenue-continuation transaction that started in 2010, and but for one minor technicality, should have been recorded in 2011.”

“You’re asking me to ‘cook the books’,” Helen said.  “I won’t do it.”

“I hate to play hardball with you Helen but the boss authorized me to tell you he will cut off reimbursement payments in the future that the company makes so that your kid can have a live-in nanny 24-7 unless you are a team player on this issue. Remember, Helen, this is the only time we will request that you go along.”

Helen was surprised by the threat and dubious of the one-time-event explanation.  She sat down in her chair and reflected on the fact that the reimbursement payments are $35,000, 35 percent of her annual salary.  She is a single working mother.  Helen knows there is no other way that she can afford to pay for the full-time care needed by her autistic son.


This case discusses improper revenue recognition. This case is further complicated by a personal situation of the controller.


Ethical Issues

The case looks at the integrity of the controller and CFO of Family Games, and whether they will subordinate their judgment given pressures and threats. The gambling habit of the boss (CEO) is an indicator of the tone at the top; a gambler may be keeping secrets of debt and deceits. This case can be used to discuss with students whether someone playing dirty (threats) release an accountant from the duty to follow rules (i.e., threaten back, break confidence, or even blackmail)? Another way to look at this is it alright to use unethical means to solve an ethical dilemma?


From a right perspective, the stakeholders have a right to financial statements in accordance with GAAP and with adequate disclosure. Helen has a right to work in a job without threats to her family security. From a deontology perspective, Helen and Land have a duty to meet professional obligation of not subordinating judgment and following accounting standards. From an utilitarian perspective all stakeholders, not just the gambling boss or dependent employees, must be considered in the greatest number and benefits. From a virtue perspective, the values of trustworthiness, respect, responsibility, fairness and caring must be addressed.


Due to Helen receiving reimbursements for autistic son, Helen needs to develop a short term and long term strategy to the situation. In the short run Helen can resist Land, look for a job quickly, and quit. Helen could also give into the threat from Land and look for a job less quickly. In the long run Helen may consider taking the situation to the audit committee and the Board of Directors. She may threaten the CEO with exposure of his gambling problem. Helen may consider in some way blow the whistle on the situation. If Helen gives into the threats, there will more pressures and threats of exposure, in addition to current threats, the next time or year when improper revenue recognition or another accounting treatment is needed.



  1. Briefly discuss the rules for revenue recognition in accounting.  How does the proposed handling of the $12 million violate those rules?  Be specific.


  1. Assume Carl Land and Helen Strom are both CPAs.  What ethical issues exist for them in this situation?  Identify the stakeholders in this case and Strom’s ethical obligations to them.


  1. To what extent should Helen consider the gambling problems of her boss in deciding on a course of action? To what extent should Helen consider her child care situation and the threatened cut off of reimbursements? If you were Helen Strom, what would you do?  Why?