Josie is an accounting supervisor at Monk & Sons Realty. She instructs her subordinate, Maria, to make certain accounting entries in the company’s books that will increase revenue by a material amount.

Maria researches the matter and tells Josie that recognizing revenue in this way would be premature and

Josie is an accounting supervisor at Monk & Sons Realty. She instructs her subordinate, Maria, to make certain accounting entries in the company’s books that will increase revenue by a material amount. Maria researches the matter and tells Josie that recognizing revenue in this way would be premature and not consistent with GAAP. She discusses her concerns with Josie and later, Monk’s CFO, both of whom insist she make the entries. She also has a confidential discussion with Monk’s internal audit chief, who shares her concerns. To comply with the AICPA Code of Professional Conduct, what other option should Maria consider?

Make the entries as her bosses instructed.
Take out a professional liability policy.
Discuss the matter with the board of directors.
Report the matter to the board of accountancy

The Correct Answer and Explanation is:

Correct Answer: Discuss the matter with the board of directors.

Explanation:

Maria is facing an ethical dilemma that directly challenges her professional integrity and adherence to the AICPA Code of Professional Conduct. The issue at hand involves being instructed to make accounting entries that inflate revenue, which Maria has determined is inconsistent with Generally Accepted Accounting Principles (GAAP). This is a serious matter because knowingly recording revenue prematurely is a form of financial statement fraud and misrepresentation.

According to the AICPA Code—particularly under Section 1.000.020 (Conceptual Framework for Members in Business)—when a member encounters threats that could compromise compliance with the rules, they are required to evaluate the significance of those threats and apply safeguards to eliminate or reduce them to an acceptable level.

Maria has already taken several appropriate steps:

• She researched the accounting issue and identified that it violates GAAP.
• She communicated her concerns to her direct supervisor (Josie) and the CFO, both of whom still insisted she proceed.
• She sought confidential advice from the internal audit chief, who shares her concerns.

At this point, her next ethical and professional recourse—before refusing to comply or resigning—is to escalate the issue further within the organization, which is consistent with AICPA guidance. The appropriate next step is to bring the matter to the attention of the board of directors or an audit committee if one exists. The board is charged with overseeing the financial integrity of the company and has the authority to address such high-level ethical concerns.

The other options are incorrect:

• Making the entries violates GAAP and the AICPA Code.
• Taking out a professional liability policy does not address or resolve the ethical issue.
• Reporting to the board of accountancy is generally considered only after internal remedies have been exhausted.

By taking the issue to the board of directors, Maria adheres to ethical standards and maintains her professional responsibility.