ASSIGNMENT HELP | Which elements of the fraud triangle are present in this situation?

You are an assistant in the accounting department of Thunderduck Shoes, a small retailer. The company has a loan that requires the company to maintain a minimum cash balance of $75,000, as reported on its year-end balance sheet. The cash balance in the general ledger was $80,000 prior to recording payroll for salaries of $15,000 that were earned in the current month.

Your supervisor says the only way Thunderduck Shoes can meet its loan requirement is to delay recording the December payroll journal entryl until January of the next year. This would be pretending as if the payroll checks were not issued until after year-end.

You questioned whether this would be ethical. The supervisor’s reply was, “Well, we don’t really have a choice. Either we do this, or we violate the terms of the loan agreement and possibly be forced to repay the loan immediately. That could put us out of business. Think of all the people who would lose their jobs! Just wait to record the December payroll journal entry until January —probably before many of our employees even get the checks we have written to them.”


Write a technical business memo addressed to your mentor at work discussing the ethical decision you must make. Be sure to consider and discuss the following questions.
• Which elements of the fraud triangle are present in this situation? Which type of fraud is in consideration?
• Who might suffer in the short term if you go along with your supervisor’s request? What might happen in the future if you go along with the request this time? If you do not go along, who might suffer in the short term and what could be the long-term consequences?
• You want to be loyal to your supervisor but honest to others who rely on your work. As an accounting assistant, which of these concerns should be most important? Why?
• What alternative courses of action can you take? Which of these is “best” given the circumstances?

Your business memo should briefly summarize the issue to your mentor at the company that works in a different department. The memo should discuss in detail the ethical considerations as you make your decision. Be sure to use your own words to paraphrase the information.

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