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Manipulating accounting records to apply for bank loans

Trades / Industries:

ABC Co. Ltd. (ABC) manufactured a wide variety of toys and games for children.  Ben had been the auditor of ABC and befriended its owner, Dale, for years. They were good friends and both found their business relationship quite rewarding. The growth of ABC had given Ben opportunities to provide additional services to the firm and its owner.


Due to contractions of the toy industry, ABC was facing serious financial difficulties.  When auditing the accounts of ABC, Ben discovered the financial impact of the industry contraction on ABC.  Sales of ABC declined while receivables and inventory went up.  The audit also revealed material quantities of slow-moving stock which was confirmed by the marketing manager and production manager.


When Ben informed Dale of his findings, Dale replied that he intended to design and produce more creative toys to boost up the sales in order to save the company from bankruptcy. However, it required large capital outlays for manufacturing equipment.  Dale asked for Ben’s help to manipulate the accounting records, so that he could successfully apply for a large loan from the bank.  In return, Dale offered a luxury clubhouse membership to Ben as a token of thanks.


What major factors should Ben consider when handling Dale’s request?  What should Ben do? 

Case Analysis

Ben could consider the following major factors when handling Dale’s request:


Professional / Company code of conduct

The Hong Kong Institute of Chartered Public Accountants (HKICPA) requires a professional accountant to comply with relevant laws and regulations, and avoid any conduct that the professional accountant knows or should know might discredit the profession.  Also, a professional accountant needs to comply with the fundamental principles of integrity and objectivity as stipulated in the HKICPA’s Code of Ethics for Professional Accountants which requires an accountant to be straightforward and honest in all professional and business relationships and avoid any conflict of interest situations.   Meanwhile, Ben also needs to observe his company’s code of conduct governing the above behaviours.


Legal Requirements

Ben might violate the Section 9(1) of the Prevention of Bribery Ordinance (POBO) if he accepted the advantage (luxury clubhouse membership) offered by Dale for helping Dale to obtain the bank loan by manipulating ABC’s accounting records; whereas Dale might violate Section 9(2) of the POBO by offering bribes.


Uncompromising Self-values

Helping Dale to get a bank loan by manipulating ABC’s accounting records might undermine Ben’s self-values of honesty, integrity and responsibility to his accounting firm.


Sunshine Test

If Ben accepted Dale’s offer and helped him to get the bank loan, he would fail to disclose his decision and the situation openly and honestly without misgiving.


When facing the above situation, Ben should avoid involve in any acts that might call his integrity and professionalism into question. He must take into account his own views on ethics and legality and offer advice to Dale if there were better alternatives.  


Zero tolerance to attempted bribes

If Dale insisted on asking for Ben’s help to get the bank loan, Ben should decline the advantage offered by Dale and report the attempted bribe to his accounting firm and the ICAC as soon as possible.

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