1. Family Games, Inc. Case 4-4 By John Duarte and Justin Bost

2. Overview u Introduction u Ethical Decision- Making Model Framing the issue The facts Stakeholders Core values Operational issues Accounting issues u Ethical Decision- Making Model (cont.) Possible Alternatives Evaluate Alternatives Ethical analysis Decision u Questions

3. Family Games, Inc. u Helen Strom, controller – Forced into making a decision u Carl Land, CFO – Threatens Helen with taking away reimbursements for child care u CEO aka “The Big Boss” – Using company funds in Vegas

4. Step 1: Framing the Issue u Should Helen perform an unethical act to maintain reimbursements for much needed child care services?

5. Step 2: The Facts u Usual annual sales of about $50 million u Net loss the last two years due to cost-cutting measures u CEO has a gambling problem u CEO has borrowed money from company for personal reasons (sizeable “I Owe U”)

6. Step 2: The Facts (cont.) u Transaction began 12/30/07 and is expected to be finished 1/2/08 u CFO tells Strom to record $12 million revenue in 2007 u Strom refuses to “cook the books” u CFO leaves Strom with ultimatum approved by CEO

7. Step 3: Stakeholders u CEO – Needs performance bonus u CFO – Following orders from superior u Parties affiliated with the company – Employees, shareholders, creditors, etc. need reliable financial information u Helen’s son – Needs full time care (autism)

8. Step 4: Core Values u Trustworthiness – Honesty Knowingly recording a transaction wrong is not honest – Integrity Likelihood of not getting caught

9. Step 4: Core Values (cont.) u Trustworthiness (cont.) – Reliability Financial information Operations of company – Loyalty Helen’s son The company Herself

10. Step 4: Core Values (cont.) u Respect – Helen isn’t receiving any u Responsibility – Helen’s son – User’s of financial information u Fairness – A “no win” situation

11. Step 4: Core Values (cont.) u Caring – CEO and CFO only caring for themselves u Citizenship – Public trust in financial statements – Code of Ethics

12. Step 5: Operational Issues u Inappropriate use of company resources – Internal controls – Collusion u Abuse of upper level position – Coercion Possibly throughout entire company u Board of directors – Lack of governance

13. Step 6: Accounting Issues u Improper revenue recognition – Could affect several accounts Overstate revenue and AR Understate inventory u Improper matching u Manipulating a sales invoice