Use the following to guide students on what is expected of them in answering this question

Question

Tommy Hubbs is the new controller of XYZ Corporation. Recently, Hubbs was approached by
Carol Franks, the CFO, and told in no uncertain terms to record $100,000 in revenue at the end
of 2015 even though the sale was not made until January 3, 2016. Hubbs contacts a good friend
who used to be the controller of XYZ and is told the environment of the company is one of loyalty
at all costs. His friend shares that he left the company because of differences on numerous
accounting issues. The friend advises Hubbs to let it go this one time to show he is a team player.
Assume Hubbs decides not to go along with Franks' dictum. Prepare an outline to help him give
voice to his values and attempt to change hearts and minds of those in XYZ that might block
proper accounting.

As you read the case, think about the following series of questions for the protagonist to address
after identifying the right thing to do including:
• How can they get it done effectively and efficiently?
• What do they need to say, to whom, and in what sequence?
• What will the objections or push-back be and, then?
• What would they say next? What data and examples do they need?

Answer 1

To assist you in the process of analyzing what actions should be taken by the protagonist, here are the most frequent categories of argument or rationalization that we face when we speak out against unethical practice.

Expected or Standard Practice: "Everyone does this, so it's really standard practice. It's even expected."

Materiality: "The impact of this action is not material. It doesn't really hurt anyone."

Locus of Responsibility: "This is not my responsibility; I'm just following orders here."

Locus of Loyalty: "I know this isn't quite fair to the stakeholders, but I don't want to hurt my reports/team/boss/company."

Isolated Incident: "This is a one-time request; you won't be asked to do it again."

After the discussion is completed, ask students if they would be willing to blow the whistle by going to the SEC if they are unsuccessful.

General Guidance:

Hubbs should follow the process outlined in Exhibit 3.13 and described in question #3. This should include bringing the matter to the attention of the board of directors, if necessary.

Hubbs should look for supporters in the organization. He might contact a member of the board prior to going to the board if he knows that person well and/or has established a relationship with that party. This is step Cynthia Cooper took in the WorldCom fraud when she approached the chair of the audit committee.

Hubbs needs to counteract the reasons and rationalizations by using the lever of professional responsibilities and that the company is becoming involved in a fraudulent activity that will only result negative consequences in the long run.

From a practical point of view, Hubbs should explain that by accelerating the revenue into 2015, the company is borrowing from the future to make the current operating results look better and will need to find ways to cover the shortfall at the end of 2016. He should explain it becomes a snowball effect that falls apart down the road.