Case .11

Assume you are a CPA and a member of the AICPA, the FEI, and the IMA. You are CFO of a publicly owned corporation whose CEO is planning to become the sole stockholder of a newly established corporation in a situation with characteristics similar to those described in Securities and Exchange Commission AAER 34, “Securities and Exchange Commission v. Digilog, Inc. and Ronald Moyer” (described on pages 234–235). When you inform the CEO of the SEC’s findings in AAER 34, the CEO informs you that the corporation’s independent auditors have provided a copy of a reply by the AICPA’s Technical Information Service to a question involving a situation similar to that in AAER 34 and that the Technical Information Service answer was that consolidated financial statements were not required. The CEO gives you Section1400.07, “Reporting on Company Where Option to Acquire Control Exists,” of the AICPA Technical Practice Aids and orders you not to insist on consolidation of “his” corporation’s financial statements.

Instructions

What are your ethical obligations in this matter? Explain.