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There are many cases where companies provide doctored financial reports to enhance the chances of attracting investors. The development of false financial reports has been traditionally used by companies that have fraudulent leadership and management functions, and they always end up losing their investors’ money. There are many financial risks associated with a fraudulent and incompetent leadership function, and external auditors should be very careful when they have suspicions of false financial reporting in a company. The use of false financial statements may mislead the decision-making process on the part of the auditors when making recommendations to the business entities and their respective stakeholders.
According to the analysis of the data performed by Staci, the company seems to be having a high potential for growth over the next half-decade. It is apparent that the company has been financially stable, and it has a performance level that will be attractive to investors. However, there are indications that the information provided by the company might have been doctored to reflect an image of a company that is doing extremely well in business processes.
Staci demonstrated her suspicions that the initial data seems to be “quality financial statements’. The data promises investors a growth rate of 30% in the next five years, but Staci does not believe that the company has such a great potential.
Additionally, she has been provided with claims that the company has been conducting fraudulent purchases and sales with an affiliate company to boost its financial records. The fact that this information was provided by a friend who was an executive at the ProTech Company shows that Staci’s suspicions might be valid. Staci’s boss at the IIBS is strongly advocating for the stock to be priced above $34, which is suspicious because of the allegations that he has been seen in the amusement park having friendly talks with the CEO of ProTech. Based on the evidence and the allegations, it is clear that Staci’s suspicions might be valid, and she should make a decision based on her instincts.
Staci should refer to the case of Enron, whereby the leadership function in the company developed false financial statements to lure the investors into believing that it was performing better (Nogler and Jang 54). The fraudulent leadership function led to the bankruptcy of Enron, and the associated managers were to blame for failing to raise an alarm when they discovered that the executive function was following partisan interests at the expense of stakeholder’s money (Wade 20). Staci should avoid such a scenario by ensuring that the data and information provided is valid (Craft 2013).
The first step should involve an independent audit of the ProTech Company. Staci should recommend the postponement of the IPO because the data and information provided to determine the price of the stock cannot be trusted (Collier 28). Staci should also confront her boss about the issue to ensure that he has not been bribed to push the IPO and to ensure that the price of the stock is relatively high. Staci is protected against termination of employment by the boss under the employment law if she fails to make a fraudulent decision as compelled by the boss (Miceli, Near and Dworkin 12). She has the right to observe a utilitarian approach toward ensuring the decision made in this case is ethical (Hursthouse 645). It is, therefore, imperative for the IIBS to conduct an independent financial audit of the ProTech Company before making a decision on the price of the stock.
Collier, Paul. Accounting for managers: Interpreting accounting information for decision making. New Jersey: John Wiley & Sons, 2015. Print.
Craft, Jana L. “A review of the empirical ethical decision-making literature: 2004–2011.” Journal of Business Ethics 117.2 (2013): 221-259. Print.
Hursthouse, Rosalind. “Normative virtue ethics.” ETHICA 1.1 (2013): 645. Print.
Miceli, Marcia, Janet Near, and Terry Dworkin. Whistle-blowing in organizations. Abingdon: Psychology Press, 2013. Print.
Nogler, George and Inwon Jang. “Auditor’s going‐concern modification decision in the post‐Enron era.” Journal of Corporate Accounting & Finance 23.5 (2012): 53-60. Print.
Wade, Cheryl. “Comparisons between Enron and Other Types of Corporate Misconduct: Compliance with Law and Ethical Decision Making as the Best Form of Public Relations.” Seattle Journal for Social Justice 1.1 (2012): 20. Print.