Louisiana Gas Production and Operating Company (LGO) (Case Study Sample)

Case Study: Louisiana Gas Production and Operating Company (LGO)
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Case Study: Louisiana Gas Production and Operating Company (LGO)
What Might Be the Professional Skepticism in the Situation at LGO Business Environment?
Skitch, Maryland, and Anderson (SM&A) is an accounting firm that has been contracted by the Louisiana Gas Production and Operating Company (LGO) to prepare the annual audit plan. Due to intense competition in the market, LGO has been underperforming. It has also been under pressure to raise the price of its stock. SM&A won the bid to prepare LGO’s audit through a competitive process and hopes to sustain the relationship between the two companies in the near future. Based on the case study, SM&A has been losing clients to other companies over the past three years. During the first quarter review of LGO, Mrs. Loise Maryland (SM&A’s partner in charge) and Mrs. Sarah Diamond (SM&A’s Accounting Audit Supervisor in charge of LGO) found that the revenue numbers exceeded the horizontal and vertical analytics compared to the previous quarters and the annual financial statement. Mrs. Melinda Jones, the CFO for LGO, assured them that everything was fine since the firm had booked some exemplary sales in that quarter. In truth, however, they had been flat, and the natural gas prices were declining. Furthermore, behind the scenes, LGO’s Chairperson of the Board and his son, the firm’s CEO, had told Jones to keep revenues high as this would create a positive environment for the company. The latter did not say anything regarding the duty to stockholders and integrity during the meeting.
The professional skepticism in the situation at the LGO business environment relates to the possibility of Melinda Jones having inflated the revenues according to the wishes of the Chairperson of the Board and the CEO. Based on the case study, the firm is trading on NASDAQ at $9 per share, which is way below the $25 per share value that it had two years ago. Increasing the revenues would make it seem like the company is performing well, and the per share value would increase. It would also be able to enjoy the accompanying benefits, such as investor confidence. In fact, it is likely to attract more people to invest in it. According to Li (2010), Enron is an ideal example how deceptive revenue reporting can lead to adverse consequences. Generally, the professional scepticism entails the reporting of unsubstantiated revenues in order to deceive stockholders, rivals, customers, investors, the media, and other key stakeholders.
How Would You Evaluate the LGO Top Management Under the Fraud Triangle?
The fraud triangle refers to the framework for explaining the thinking behind an individual’s choice to commit fraud. It encompasses three critical steps: pressure on the employee or executive, the opportunity to perform the fraudulent activity, and the capacity for rationalization (Morales, Gendron, & Guénin-Paracini, 2014). The framework applies aptly to the situation that the LGO’s top management finds itself in. Firstly, there is pressure on the leadership to improve the financial results of the company. According to the case study, the firm’s per share value is decreasing at an alarming rate, from $25 per share two years ago to $9 today. In fact, the company has been under pressure to raise the price of its stock. To compound the situation, the oil and gas industry has been difficult due to intense competition and high oil prices.
Secondly, there was an opportunity to commit the fraud since the company is headed by a family. Whereas the father is the Chairperson of the Board, the son is the CEO. As a family, they own 90% of the preferred stock and 36% of all common stocks. Evidently, they are powerful individuals in the decision-making structure. Essentially, when the board of a company is broad and diverse, it is difficult to reach a unanimous decision of committing a fraud, which is not the case for LGO. Furthermore, the company’s CFO, Melinda Jones, has been with the firm for sixteen years and is liked by the Chairperson. Consequently, she is likely to oblige to anything that she is told to do. Finally, there is evidence for rationalization since the company argued that the increase in revenues was due to some good sales in that quarter. Besides, the top management could rationalize the fraud as being well intended, especially to the stockholders.
How Would Wou Evaluate the Leadership of SM&A?
The leadership of SM&A is considerably equipped to perform the necessary strategic and operational duties. According to the case study, Mrs. Loise Maryland, who is the partner in charge, has twenty-five years of experience in the oil and gas industry. Similarly, Mrs. Sarah Diamond, the supervisor assigned to LGO, has fifteen years of experience in the petroleum marketplace. The other leaders in the organization are experienced and qualified. However, the company has been losing clients over the past three years, which signifies management and marketing deficiencies. Besides, Maryland and Diamond are extremely close, and, in fact, the former can do anything for the latter. While it is important for employees to create friendships, they should not be this close as it may impede professional accountability.
How Would Virtue Ethics Come Into Play With SM&A’s Upper Management?
Virtue ethics is a key normative approach in ethics. In contrast to consequentialism, which stresses the nature of the outcomes, and deontology, which stresses the moral duty, virtue ethics is premised on the character of the moral agent. In other words, it is interested in determining the kind of employees or leaders that people ought to be. Since a virtue is a moral distinction of goodness, actions that are considered to be right are those that support good character traits. Based on this understanding, virtues in the context of SM&A’s upper management encompass the adherence to truthfulness, openness, accountability, integrity, humanity, collaboration, and transcendence.
What Might Be the Deontology Ethical Theories and Situation With Respect to Your Role at SM&A?
My role at SM&A requires the consideration of deontological theories and the situation in the organization. At the basic level, deontological ethical systems assert that some acts are intrinsically good regardless of the consequences. One of the best-known theories in this realm is the categorical imperative by Emmanuel Kant, which argues that morality ought to guide the actions that we take (Kant, 2012). Based on this view, morality is universal, and all human actions should enhance consistency and reduce conflicts. Therefore, concerning my role at SM&A, the duty ethical theories require me to support openness, integrity, and accountability. In a corporate setting, leaders and managers should act in accordance with the rules and principles irrespective of the outcomes. Therefore, although SM&A depends on the partnership with LGO for profits, it should not contravene the duty to uphold the accounting industry regulations.
What Might Be the Duty to Perform to Stockholders, Creditors, Employees, and Government by Upper Leadership at LGO?
The upper leadership at LGO has a duty to perform to stockholders, creditors, employees, and government. Stockholders, by their nature of being investors, expect the company to perform well financially in order for them to earn dividends and see their shares increase in price. In practice, they have given the management the authority to run the business on their behalf. On their part, creditors expect their money to be repaid within the agreed terms. However, the company can only repay if it is financially healthy. Employees also expect the firm to compensate and remunerate them based on the agreed employment contracts. Additionally, the company has to adopt work-related policies in order to make the workplace conducive to working. Lastly, the government expects LGO to operate within the regulatory and legal framework in place. Essentially, laws and regulations are enacted to promote the interests of the larger society, and the government ensures that they are enforced.
What Might Be the Consequentialism Ethical Theory Expressed and Practiced by Patrick and Alexander Field?
Patrick and Alexander, the chairperson and the CEO respectively, seem to base their actions on the broader theory of consequentialism. As the name suggests, this approach analyzes the consequences or outcomes of one’s behavior or actions to determine whether they are right or wrong. In other words, a decision is right if it has the potential of producing a better outcome compared to other options. The most appropriate consequentialism theory for explaining the actions of Patrick and Alexander is ethical egoism. It argues that people’s conduct ought to be focused on promoting their well-being (Annas, 2008). It is important to note that egoism does not just mean selfishness and greed but encompasses all forms of motivation to benefit one’s self. Ethical egoism, as a form of consequentialism, advances the view that self-interest is the nature of human beings. Evidently, egoism might prescribe behavior that may be harmful, helpful, or neutral to others. In the case study, Patrick and Alexander tell Jones to increase the revenue fraudulently in order to benefit themselves. In other words, they advance their self-interests at the expense of other stakeholders, such as stockholders, employees, creditors, and the government. Their actions are only aimed at producing outcomes that are favorable to their selfish self-interests.
What Could Be the Quantitative and Qualitative Benefits and Costs for Mrs. Melinda Jones to Follow the Request?
The main benefit is that J...