(a) What pressures or factors will executives use to encourage accounting managers and staff to go along? (b) What arguments can you use to resist those pressures? (c) How does one determine whether a company is aggressively reporting, but still in the guidelines of GAAP, versus fraudulently reporting financial information?

Question

What will be an ideal response?

Answer 1

[a] Senior executives who face pressures to meet earnings expectations of others, such as analysts, bankers,
stockholders, may place undue pressure on others in the organization to help meet those targets by

employing a variety of techniques. The executive status of senior management can intimidate lower-
level employees to comply with demands expressed from above. The threat of job loss or lack of

promotion makes it difficult for lower-level employees to resist pressures from top management. The
power and perceived business savvy of senior executives may also cause lower-level employees to doubt their own judgment about the situation. Convincing themselves that they must not understand the
entire situation, lower-level employees often passively accept the demands of more senior employees.
[b] One of the best defenses for lower-level employees to take is to rely on professional standards as
the foundation for their actions. In this case, the caller’s reasons for not agreeing with the recording
of certain sales and receivables transactions is that the terms of the transactions do not satisfy
explicit requirements noted in generally accepted accounting principles (GAAP). By highlighting
the lack of compliance with GAAP, an employee can keep the focus of the issue on the need to
satisfy professional standards. Until senior executives can prove that the terms of the transaction
satisfy all GAAP criteria, they have little basis to justify their actions.