Course › 3.9 Ethics and Financial Reporting › Free response

Free response · 3.9 Ethics and Financial Reporting

Exam-style concept-application task: apply the topic to a new business scenario. Suggested time 12–13 minutes.

FRQ 3 — Concept application (3 points)

Lakeview Fitness is a privately owned chain of six gyms. Its office manager, Ren, handles membership payments, deposits cash, pays bills, and prepares the monthly financial summary the owner reviews. Ren has been quietly keeping about $600 of cash membership payments each month and adjusting the summary so totals still match. Separately, the owner is applying for a bank loan and has asked Ren to 'make the summary look as strong as possible' by leaving out a $45,000 equipment lease obligation.

(A) Identify the unethical practice Ren is engaged in, and explain, using the framework, why Ren's role created the opportunity. 1 pt

(B) Identify the unethical practice the owner is requesting, and explain the incentive behind it. 1 pt