Reference no: EM132483084

Question - Topic: It is 2008. Revenue growth has slowed, and Accrual Inc.'s stock price has fallen. The company expenses as a percentage of the total revenue increased because the growth rate of the company's earnings dropped. This means that Accrual Inc's earnings might not meet Wall Street analysts' expectations. John Debit, the CFO, was instructed by Theodore Dollar, the CEO, to find a way to meet the profit estimates in order to avoid the stock price from falling further, so Debit has decided to start classifying certain operating expenses as long-term capital investments. Reclassifying $1 million that was paid to lease data network lines to capital assets from operating expenses provided the company another $1 million in additional net revenues to meet Wall Street's earnings estimates. These newly reclassified assets were paid to lease data network lines from other companies. The reclassification thus turned a $500,000 loss into a $500,000 profit.

Debit instructed Jackie Ledger, the controller, to have her staff make the appropriate journal entries to capitalize the data line leases by crediting the expense in the income statement and to reclassify them as investment activity on the balance sheet, labeled "fixed assets data lines." The SEC has received an anonymous tip on its hotline about Accrual Inc.'s inflated earnings and has retained you to determine whether there is any merit to the allegations.<=I affirm and certify that all the information is correct

Questions -

1) What skills are needed to employ or develop the fact-finding aspects of the case?

2) What accounting principles and standards may have been violated?

3) What documentation is available to prove the case?

4) Have any laws been broken?

5) Where is there a clear division between the people and the organization?

6) What are the potential deceptions between the people and the organization?