Cliff Hall opened Meridian Co. on January 1, 2009. At the end of the first year, the business needed additional capital. On behalf of Meridian, Cliff applied to Federal National Bank for a loan of $300,000. Based on Meridian financial statements, which had been prepared on a cash basis, the Federal National Bank loan officer rejected the loan as too risky.
After receiving the rejection notice, Cliff instructed his accountant to prepare the financial statements on an accrual basis, and to include income for contracts that would not close until well after he re‐applied for a loan. Cliff then applied for a $300,000 loan from First City Bank, using the revised financial statements. On this application, Cliff indicated that he had not previously been rejected for credit.
Discuss Cliff’s ethical and professional conduct in his second application for credit, with First City Bank.