IMA Moments

Recognizing Unethical Situations

By Kip Krumwiede, CMA, CSCA, CPA
April 17, 2019
1 comments

As the director of research at IMA® (Institute of Management Accountants), I wanted to write this blog post to shine a light on unethical situations, because you can get into unethical situations before you even know it.

 

MY STORY

 

One or two years after I received my master’s degree in accounting, I started working as a consolidations accountant for a large communications company in its new mobile phone division (yes, mobile phones were new at that time!). The mobile phone business developed in the partnership realm; the more partnerships your company pieced together with strategic locations or towers, the more money you made.

 

Part of my job was to consolidate all the company’s partnerships for the end-of-month closing and put together a profit statement for the month. I would put together the report, send it off to the controller on the afternoon of the deadline, receive requests back from the controller, and repeat the process until the report was approved. We would sometimes be in the office until 8 or 9 p.m. to get these end-of-month reports done on time.

 

After three or four months at this job and putting together these reports, late one night the controller asked me to book a contingent gain on a litigation case. I remembered that GAAP says we don’t book contingent gains as a journal entry unless it’s highly probable. But even then, in most cases, it should just be placed in the notes. Moreover, the adjustment was just the right amount to hit our monthly profit target—another red flag.

 

This request stood out to me, so I went to my direct supervisor at the time for clarification. Unfortunately, it was another late night, and my supervisor basically said, “Just go with it.” We booked the entry, and that was it. The more I thought about this situation the next day, the more I realized how unethical it was.

 

I started looking for another job and, within a month or two, had secured a position at another company. Five or six months after I left the mobile phone division, it was bought by another company and most of the staff I had worked with were let go. So, for many reasons, it was good that I left.

 

Four or five years after this incident, I went back to school for a Ph.D. and then was a professor for many years. Every time I talked to my classes about the IMA Statement of Ethical Professional Practice and how to act in unethical situations, I would recount this story. I tried to emphasize that (1) it’s just not worth going along with fraud, because accountants will be the ones to be prosecuted and suffer other consequences, and (2) that means, you better have some savings in the bank so that you don’t feel financially tied to the company and that you’re able to walk away if they ask you to do unethical things.

 

There are stricter rules and protections for whistleblowers today than there were in the past. But that doesn’t make it much easier for the whistleblower, because there will always be repercussions for the action. If they can’t resolve it in their regular leadership channels, hopefully there is an audit committee or an ethics hotline they can go to with their concerns.


IMA ETHICS HELPLINE

 

For clarification of how the IMA Statement of Ethical Professional Practice applies to your ethical dilemma, contact the IMA Ethics Helpline.

 

In the U.S. or Canada, dial (800) 245-1383. In other countries, dial the AT&T USA Direct Access Number from www.usa.att.com/traveler/index.jsp, then the above number.

 

The IMA Helpline is designed to provide clarification of provisions in the IMA Statement of Ethical Professional Practice, which contains suggestions on how to resolve ethical conflicts. The helpline cannot be considered a hotline to report specific suspected ethical violations.

 



Kip Krumwiede, CMA, CSCA, CPA, Ph.D., is the director of research for IMA. He can be reached at (201) 474-1732 or kkrumwiede@imanet.org.
1 + Show Comments

1 comment.
    Rick Fogarty April 19, 2019 AT 6:23 pm

    I think under GAAP you don’t book contingent gains until realized. There should not have been a discussion unless prior to FAS 5. And that was a really long time ago.