Kyle and Luis were friends since rooming together in college ten years ago. They were both finance and accounting double majors. They were each other's weddings and their wives were also good friends. After college Kyle went on to get his CPA license and ultimately went to work as controller, and then CFO, of a publicly held hardware chain, King's Hardware. King's had twenty-five retail outlets in a five state region and looking at acquiring a hardware chain (Rex's) of six retail outlets in a state that King's wants to get a presence in. Luis worked for a bank after college but then changed to being a real estate investor. Luis was the one who gave Kyle the tip on Rex's being open to a takeover offer; Luis was the realtor for all of Rex's store locations.
Kyle hired a CPA firm to do due diligence for the acquisition, including updated appraisals of Rex's store locations and valuations of contents of each store. Kyle had the report. The problem was that the report is showing that Luis was a 10% owner of Rex's; would be paid a 15% commission by Rex's upon a successful buy-out; and, most troubling of all, the value of Rex's locations and inventory was overstated on Rex's books by 50%.
Kyle is considering who to tell, how, when. Most of all he is feeling betrayed by Luis.
1. What are the ethical issues?.
2. What would you do next and why? Consider the following in your response.
What do you need to say, to whom, and in what sequence?
What are the reasons and rationalizations you are likely to hear from those who would try to detract you from your goal?
How can you counteract those pressures? What is your powerful and persuasive response to these arguments? To whom should you make them? When and in what context?

Question

Quizplus · Accepted Answer

The Answer of Kyle and Luis were friends since rooming together in college ten years ago. They were both finance and accounting double majors. They were each other's weddings and their wives were also good friends. After college Kyle went on to get his CPA license and ultimately went to work as controller, and then CFO, of a publicly held hardware chain, King's Hardware. King's had twenty-five retail outlets in a five state region and looking at acquiring a hardware chain (Rex's) of six retail outlets in a state that King's wants to get a presence in. Luis worked for a bank after college but then changed to being a real estate investor. Luis was the one who gave Kyle the tip on Rex's being open to a takeover offer; Luis was the realtor for all of Rex's store locations.
Kyle hired a CPA firm to do due diligence for the acquisition, including updated appraisals of Rex's store locations and valuations of contents of each store. Kyle had the report. The problem was that the report is showing that Luis was a 10% owner of Rex's; would be paid a 15% commission by Rex's upon a successful buy-out; and, most troubling of all, the value of Rex's locations and inventory was overstated on Rex's books by 50%.
Kyle is considering who to tell, how, when. Most of all he is feeling betrayed by Luis.
1. What are the ethical issues?.
2. What would you do next and why? Consider the following in your response.
What do you need to say, to whom, and in what sequence?
What are the reasons and rationalizations you are likely to hear from those who would try to detract you from your goal?
How can you counteract those pressures? What is your powerful and persuasive response to these arguments? To whom should you make them? When and in what context?

Kyle and Luis Were Friends Since Rooming Together in College