John Sullivan owns appartments buildings in Nova Scotia, New Brunswick, and Quebec. Each property has a manager who collects rent, arranges for reparis, and runs advertisements in the local newpaper. the property managers transfer cash to Sullivan monthly and prepare their own ban reconciliations.
The manager in New brunswick has been stealing large sums of money. To cover the theft, she understates the amount of outstanding cheques on the monthly bank reconcilation. As a result, each monthly bank appears to balance. However, the balance sheet reports more cash than Sullivan actually has in the bank. In negotiating the sale of the New Brunswick property, Sullivan is showing the balance sheet to prospective investors.
Questions
1) Identify two parties other than Sullivan who can be harmed by this theft. in what ways can they be harmed?
2) Discuss the role accounting plays in this situation.