Your client, Cars Unlimited, Inc., is currently the largest client for the local office of the audit firm. Cars Unlimited, Inc. is a large car dealership that sells over 15,000 cars a year. You have been on this engagement for 3 years already but this is your first time as the senior associate. Over the past 3 years, you have developed a strong friendship with many of the car salesmen that work at the dealership.
During the audit planning process, the engagement manager identifies the sales at year-end to be of high risk. The manager assigns you to perform the audit work for this high risk area. After comparing the VINs from the sales forms to the VINs included in the year-end inventory counts, you noticed that 10 vehicles that were reported as been sold at year-end but the vehicles were still in the lot for the year-end inventory count. The total revenue for these 10 vehicles is not above the materiality threshold for this client.
After looking over additional backup, you notice that the salesman was the same for all 10 vehicles. The salesman was Josh, one of the guys that you became friends with over the years. Before alerting anyone on your engagement team, you decide to talk to Josh about the situation and listen to his explanation. During the discussion with Josh, he tells you the following information:
He backdated the retail date for the vehicles to include them in his previous month’s sales figure, without the knowledge of the dealership. The reason was so that he could reach the required sales figure in order for him to receive a bonus. He only did it because his son was sick and need the money to provide his son to with medical care. Lastly, he ended the conversation by saying, “Please don’t inform the company of this issue because I will lose my job and have to pay back the bonus that I don’t have. My son is still very ill and I need this job to pay for the medical bills.”
Identify the ethical issues in the above situation. How would you handle your dilemma?