Reference no: EM132982986

Pedro Santos is the controller of a corporation whose stock is not listed on a national stock exchange. The company has just received a patent on a product that is expected to yield substantial profits in a year or two. At the moment, however, the company is experiencing financial difficulties; and because of inadequate working capital, it is on the verge of defaulting on a note held by its bank.

At the end of the most recent fiscal year, the company's president instructed Santos not to record several invoices as accounts payable. Santos objected since the invoices represented bona fide liabilities. However, the president insisted that the invoices not be recorded until after the year-end, at which time it was expected that additional financing could be obtained. After several strenuous objections - expressed to both the president and other members of the senior management - Santos finally complied with the president's instructions.

Problem (a) Did Santos act in ethical manner?

Problem (b) If the new product fails to yield substantial profits and the company becomes insolvent, can Santos' actions be justified by the fact that he was following orders from a supervisor? Explain.