Change P&L for Mortgage

by Mary
(Western New York)

Financial Statement Fraud

Financial Statement Fraud

I have a client who wants me to change her P&L so that it looks like she has a profit instead of the actual loss so that she can refinance her house.

I will be refusing to do that. What is the best way to tell the client? My initial reaction is to also tell her that I will no longer be handling her books as she has asked me to do something unethical. Am I overreacting? Is there a better way to handle it?

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In Canada, CRA has made a response to requests like this easy. In 2000, CRA introduced third party civil penalties to deter false statements or omissions from professional tax preparers, accountants and bookkeepers. This of course does not mean that accountants cannot be aggressive filers if they are willing to stand behind their interpretations of the Tax Act. As a bookkeeper, I defer all aggressive filing requests to accountants.

I don't think the IRS has a similar penalty in the U.S. However, you might use a little humor to say that you don't know her well enough to go to jail for her.

When a company tries to manipulate or hide the company's books to help attract investors or lenders, they are committing financial statement fraud. Think about the Enron scandal back in 2002.

According to the Lawyers Connect website, financial statement fraud is actionable under the False Claims Act and the Dodd Frank Act. You can read more about what constitutes financial statement fraud and some of the consequences here ...

Hope that helps Mary.

Comments for Change P&L for Mortgage

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Dec 31, 2016
by: Mary

Thanks for the advice.

I think my client didn't have a full understanding and didn't realize what she was asking me to do was illegal.

I referred her to her CPA and gently warned her that if she made similar requests in the future, I would have to terminate the relationship.

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