A board member responsible for affordable housing capital investments commissioned me to prepare pro forma financial statements for fiscal years 2013 through 2015. I completed these reports in Excel format without making overall changes to the QuickBooks file. In the worksheets, I set up three columns: "As Reported," "Adjusted," and "Pro Forma." Previously, the organization had prepared standardized financial data in the same manner and distributed it to potential investors in 2015.

However, the board member was not satisfied with the results and subsequently ordered me to completely rebuild the books from 2013 through 2016 year-to-date (YTD 2016), requiring the removal of millions of dollars from the revenue and cost of goods sold (COGS) accounts. These figures needed to align with the three years of K-1 forms and tax returns without conflict. The core issue I face is: if I yield to the board member's demands, would I be violating my professional ethical standards?

Key Facts Summary

  • Time Period:Pro forma statements for 2013-2015, and the rebuild requirement from 2013 through 2016 year-to-date.
  • Amounts Involved:Deletion of "millions of dollars" from revenue and COGS accounts.
  • Tools and Files:Excel workbooks, without altering the QuickBooks master file.
  • Stakeholders:The board member responsible for affordable housing capital investments, and potential investors who received the standardized financial data in 2015.
  • Compliance Constraints:Must align with the 2013-2015 K-1 forms and tax returns.

Ethical Conflict Analysis

From a professional ethics perspective, this request may involve the intentional misrepresentation of financial information to mislead investors or regulators. Even if the figures do not conflict with tax documents, removing large amounts of revenue and costs would alter the profit structure, thereby affecting investment decisions. Pro forma statements allow adjustments, but the nature and reasons for adjustments must be clearly disclosed, and material facts must not be concealed.

"Pro forma" is not a shield for "fraud." Any adjustments should have a reasonable basis and retain traceable original data.

If the board member's directive aims to present a more favorable financial position without substantive business support, it may constitute financial fraud. Financial professionals should adhere to the principles of integrity, objectivity, and confidentiality, and refuse to participate in misleading reporting.

Recommended Actions

  1. Document the board member's specific requirements in writing and explain the potential risks.
  2. Consult a supervisor or the compliance department, and seek legal advice if necessary.
  3. If an agreement cannot be reached, consider refusing to comply and retaining evidence, or report to the relevant regulatory authorities.

Ultimately, whether ethics are violated depends on the specific circumstances. However, based on the current description, forcibly deleting millions of dollars in revenue and costs without reasonable business justification likely constitutes "cooking the books," rather than a legitimate pro forma adjustment.