You have been the manager of a local restaurant for the past five years. Because of increased competition, you notice youre getting fewer customers. Despite all your attempts to attract new customers and cut costs, the restaurants profitability continues to decline. The restaurant owner tells you that if this years profit is lower than last years, youll lose your job.

When preparing financial statements at the end of the year, you notice that this years profit is lower. You know that by purposely understating certain expenses, you can falsely report higher profits to the owner for this year. That will allow you to keep your job for at least one more year and look for a new job in the meantime.

REQUIREMENT 1:

What are the key issues?

REQUIREMENT 2:

What if you really believe the lower profitability is caused by factors outside your control? Would this make the false reporting acceptable?

REQUIREMENT 3:

What do you think is the correct thing to do?