Paul Sarver is the controller of a corporation whose stock is not listed on a national stock exchange. The company has just received a patent on a product that is expected to yield substantial profits in a year or two. At the moment, however, the company is experiencing financial difficulties; and because of inadequate working capital, it is on the verge of defaulting on a note held by its bank. At the end of the most recent fiscal year, the company’s president instructed Sarver not to record several invoices as accounts payable. Sarver objected since the invoices represented bona fi de liabilities. However, the president insisted that the invoices not be recorded until after year-end, at which time it was expected that additional financing could be obtained. After several very strenuous objections—expressed to both the president and other members of senior management—Sarver finally complied with the president’s instructions.

Required:

1. Did Sarver act in an ethical manner? Explain.

2. If the new product fails to yield substantial profits and the company becomes insolvent, can Sarver’s actions be justified by the fact that he was following orders from a superior? Explain.