EYK10-7. Accounting Ethics Case Sunrise Pools, Inc., is being sued by the crescent club for negligence when installing a new pool on crescent club's property. Crescent club alleges that the employees of Sunrise Pools damaged the foundation of the clubhouse and part of the golf course while operating heavy machinery to install the pool.

The lawsuit is for $1.5 million. At the time of the alleged incident, Sunrise Pools carried only $600,000 of liability insurance.

while reviewing the draft of Sunrise Pools' annual report, its president deletes all references to this lawsuit. She is concerned that disclosure of this lawsuit in the annual report will viewed by Crescent Club as admission of Sunrise's wrongdoing, even though she privately admits that Sunrise Employees were careless and believes that Sunrise Pools will be found liable for an amount in excess of $1 million. The president sends the amended draft of the annual report to the vice president of finance with a note stating that the lawsuit will not be disclosed in the annual report and that the lawsuit will not be disclosed to the board of directors.

required

Is the president's concern valid? What ethical problems will the vice president of finance face if he follows the president's instructions?