¶ … expense?

Mr. Blowhard's scheme significantly but inaccurately increases the amount of income the company would report, as it gives the company additional depreciation deductions. Each dollar of line cost reduces net income by a dollar. Generally accepted accounting principles require operating costs like line use to be expensed as they are incurred each year. Mr. Blowhard simply has bought the lines and kept them open for future customer use. He has instructed the fictional line depreciation expenses of the unused lines to be capitalized and accounted for as if they are currently depreciating, like a used line. An analogy might be accounting for the depreciation of a company car that is not used and is merely left fallow in a garage, even though the deductions that are taken by the accountant for wear and tear are comparable with those for a heavily used car.

As defined by Donald Cressey, the rationalization involved on the part of Mr. Blowhard is that he is about to retire, and wants to rapidly increase the public perception of company value in the short-term. Presumably he is pressuring his accountant to fulfill his wishes as the accountant is employed by Mr. Blowhard. However, the accountant has a responsibility to the law of the United States, to the ethical standards of the accounting profession, and to the present and future investors and shareholders of the company to create an accurate perception of the company's value. According to accounting standards, a professional accountant in public practice should observe the principles of the Code of Professional Conduct in determining the scope and nature of services to be provided, services are not to be dictated by the needs and the whims of the client alone.

Of the AICPA standards that were violated, Articles 1-3 were clearly not met. The caveats of Article 1 about showing sensitive professional and moral judgment, Article 2 about acting to serve the public interest, and Article 3 about maintaining integrity to keep public confidence, were all ignored. When the fraud is exposed when investors and shareholders see that they made personal financial decisions with inaccurate information, and the company is investigated for tax fraud, the sense of public outrage will be difficult to curtail.