Cliff Hall opened Meridian Co. on January 1, 2014. At the end of the first year, the business needed additional capital. On behalf of Meridian, Cliff applied to Scotiabank for a loan of $300,000. Based on Meridian's financial statements, which had been prepared on a cash basis, the Scotiabank loan officer rejected the loan as too risky.
After receiving the rejection notice, Cliff instructed his accountant to prepare the financial statements on an accrual basis. These statements included $48,500 in accounts receivable and $15,650 in accounts payable. Cliff then instructed his accountant to record an additional $20,000 of accounts receivable for commissions on property for which a contract had been signed on December 28, 2014, but which would not be formally "closed" and the title transferred until January 5, 2015.
Cliff then applied for a $300,000 loan from the Royal Bank, using the revised financial statements. On this application, Cliff indicated that he had not previously been rejected for credit.
Discuss the ethical and professional conduct of Cliff Hall in applying for the loan from the Royal Bank.