Ethics in Revenue Recognisition
Cash in Hand
Topic: Revenue Recognition/Misrepresentation of Fact by Client
Characters: Heather Hunter, Senior in CPA firm
“Buzz” Thompson, Owner/manager of Fashion First
Sandy, part-time bookkeeper of Fashion First
In addition to the usual mix of compilation, review and audit clients for which Heather Hunt
serves as a senior in a small office of a regional CPA firm, she has been assigned a new
client that recently engaged the firm. Fashion First, an incorporated retail outlet, is a thriving
local store. The business is run by a single owner/manager, “Buzz” Thompson, who makes
all major decisions. The business has not previously used the services of a CPA firm. In
addition to preparation of financial statements, the CPA firm will handle tax returns for the
At her first visit to the client’s office, Heather is introduced to Sandy, the part-time
bookkeeper who is also a full-time accounting student at the local university. At a
subsequent meeting, Sandy confides to Heather that she found the job at the beginning of the
semester after an extensive search. Sandy really needs the money to help finance her
education, and feels lucky to have found a good-paying job during the current economic
downturn. Feeling that Heather is someone she can talk to and get advice from, Sandy
describes a situation that has been on her mind for some time now.
Sandy’s concern relates to the handling of sales revenues. When monies from sales revenues
are counted and deposited on a weekly basis, a chart is filled out with categories carefully
delineating the type of payment: cash, checks, American Express, or Visa/Mastercard.
Sandy’s employer, after depositing the weekly total, brings this chart back with his own
written-in total of the actual amount deposited.
After looking over some of these weekly deposit chats, Sandy noticed that $500 cash was
missing from each deposit. After a more thorough inspection of monthly tax documents that
“Buzz” Thompson has filled out, Sandy noticed that the reported monthly gross revenue was
$2,000 less than what had been actually counted.
The employer is the only person handling the money after it has been counted. He is also the
only one to deposit the money. When Sandy asked Mr. Thompson about revenue not being
reported for tax purposes, he assured her that every dollar of income was reported on the tax
forms. Furthermore, “Buzz” asserted, since Sandy wasn’t the person who signed the forms,
she shouldn’t be concerned.
Author: Mary Brady Greenawalt, Associate Professor of Business Administration, The
Co-author: Janine Cloutier, Virginia Tech