Case 7-4 Harrison Industries ( a GVV Case)

Its no fun accepting a position for your dream job and then red flags are raised that make you wonder about the culture of the company. Those are the thoughts of Donna Mason on January 18, 2016, as she prepare for a meeting with her accounting supervisor, Cherly Miles. Mason graduated from State Uniersity six months ago. She is working as a staff accountant at Harrison Industries in Provo, Utah. Mason is one of tnhee staffaccountants. She reports to Cheryl Miles who, in turn, reports to Kelly Lang, the chief accounting officer. Lang reports to the CEO, Ken Harrison, and the third generation of owner-CEO of the privately held company. Harrison is also the chair of the board of directors, which has five of nine indepedent members.

Mason's concern is that on January 15th, 2016, she was approached by Miles and told to record an accrual for unpaid severance payments of $5 million to be included in the December 31, 2015, financial statements. Mason expressed her concern at the time because it was an unusually high amount. Miles informed Mason that the company planned to shut down the home appliance division in 2016 and the severance payments would be significant. This was the first Mason heard about a shutdown of any division, and she found it strange because the company's operating income in all divisiond had set record levls in fiscal year 2015,.Moreover, the surverance amount are five times the annul payroll of the division.

The number blow show the operating income levels and accruals for 2013 through 2015

12/31/2013 12/31/2014 12/31/2015

Operating Income $10 million $12 million $20 million (pre adjust)

Accrued bonus and severance $1 million $1.2 million ???

Mason took a firm stance and told miles she needed some documentation to record the accrued severance liability. Miles instructed Mason to to record the entry, that it wasn't her job to question orders. Miles made it clear in no uncertain terms that questioning directions from one's supervisor was a basis for termination. This occured on January 15, 2016.

Mason knew that she had three days before the next meeting with Miles to consider her options. The first step she took was to contact her mentor, Steve Hahn, who explained the culture of the company is to go along to get along. Hahn quickly added that it was a rare occurence for an employee to be asked to go along with something not right, so he advised Mason to do what Miles had asked. He seemed to be saying that if Miles asked her to record the severance paymets, then it must be supportive.

Mason did a lot of independent checking of the company's computer files between January 18, 2016, and found no evidence of a planned shutdownof the division. In fact, the divisin's income had risen on average by 5 percent a year for three straight years. The income level for 2015 was the highest - 8 percent. It exceeded projections by 3 percent.

Mason is trying to build a strategy to convinve Miles of why severance accrual is not justified. She realizes that Miles could be under orders from Kelly Lang and/or Ken Harrison. She wonders whether it would be wise to approach them about her concerns. After all, they interviwed Mason for the accounting position and ultimately made the decision to offer her the job. Mason felt good about working for them and Harrison Industries because organizational values and ethics were high , as in Mason's.

With reference to the above accounting audit case

a. What are the real and anticipated arguements that could be made by those at Harrison Industries who may try to convince Donna to go along with the accounting for future severance payments? Include in your discussion possible motivation for the accounting treatment?

b. What is at stake for key parties? What are Donna's ethical obligations to them?.

c. What is Donna's most powerful and persuasive response to the reasons and rationalizations she needs to address?. To whom should the arguement be made?

d. What is Donna's most effecive approach to giving voice to her values? Explain