Reporting Income and Subordination of Judgement

Question 1

When you are preparing and reporting income, members have violated the code if:

Answer 1

1) Made, permitted, or directed another to make, materially false and misleading entries in a entity’s F/S or records
2) Failed to correct an entity’s F/S or records that were materially misleading when they had the authority to record the entries.
3) Signed, permitted, or directed another to sign a document containing materially false and misleading information

Question 2

Subordination of Judgement Define:

Answer 2

If members have disagreements with a superior over how to record potential earnings (or some other issue), they are not to simply accept the superiors judgement.

Question 3

How do you handle a disagreement with a superior?

Answer 3

Proper Procedure:
1) Evaluate the significance of the threat that a MATERIAL MISREPRESENTATION will occur or that APPLICABLE LAWS OR REGULATIONS WILL BE VIOLATED.

2) If it is not significant, then nothing further needs to be done.
3) Legal violation- the member should discuss it with the superior. If they still disagree, then go over that person’s head.

4) If their superior disagrees with your position and you still feel that you’re correct then:
- Determine whether the organization’s internal policies and procedures have any additional requirements for differences of opinion.
- Determine for communicating to third parties, such as the organization’s external accountant.
- Consult legal counsel regarding responsibilities
- Document your understanding and conversations with superiors

5) Consider quitting the firm and going to the SEC