| Course | AC504 Ethical Issues in Business and Accounting |
|---|---|
| Unit | Unit 9 |
| Paper type | Governance critique |
| Length | About 1,110 words, 7 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Accounting |
| Updated | October 2026 |
Free sample paper for AC504 Unit 9
Six Years of Rent Nobody Questioned: A Unit 9 Governance Critique of a Distributor's Board
[Student Name]
Purdue University Global
AC504: Ethical Issues in Business and Accounting
Unit 9 Governance Critique
[Instructor Name]
[Date]
The medical-supply distributor, its officers, directors and every figure are composite; the regulations, listing standard, standard and article cited are real.
The Conduct
The company leases three regional warehouses from a trust controlled by its chief executive and his siblings. Two independent appraisals obtained after the leases came to light put market rent about 35 percent below what the company paid. Over six years, the excess comes to roughly $4.1 million. No annual report disclosed the leases as related-party transactions, and the board minutes show no discussion of them after the first lease was signed, when the chief executive described the trust only as "a local landlord."
The Rules That Should Have Caught It
Three sets of rules applied. Listed companies must disclose transactions above $120,000 in which a director or executive officer has a direct or indirect material interest, and to describe how the company screens such deals (Transactions with related persons, 17 C.F.R. § 229.404, 2024). Under the accounting standards, the notes must describe significant dealings with related parties and give their amounts (Financial Accounting Standards Board, 1982). The exchange's listing standards define director independence and require an independent audit committee (New York Stock Exchange, 2024). Each rule depended on someone asking whether the landlord was related.
The Board, Piece by Piece
One person as chair and chief executive. The chief executive also chaired the board and set its agendas. Combining the roles is legal and common, but it means the person whose conduct most needs oversight controls what the board discusses. No lead independent director had authority to add items.
The audit committee's financial expert. The committee's designated financial expert had been the company's chief financial officer until 26 months before joining the board. Under the exchange's standards, a former employee is not independent until three years have passed. The board had treated him as independent anyway, relying on an internal reading that his role had ended earlier. Even setting the rule aside, he had worked for the chief executive for nine years and had signed off on the first lease.
No related-party policy. The company had no written policy requiring directors and officers to report related interests or requiring committee approval of related-party transactions. Officer questionnaires asked about related transactions in general terms, and the chief executive answered "none" each year.
Compensation and tenure. Four of seven directors had served more than twelve years, and three had been recruited by the chief executive. Long tenure is not misconduct, but it tends to produce boards that trust management by habit.
The leases survived six years not because any director approved a fraud but because every safeguard that might have asked the question depended on the chief executive volunteering the answer, and he controlled the agenda, the questionnaire and the people who might have checked.
Which Safeguard Would Have Surfaced It First
The strongest candidate is a written related-party policy with independent verification. If the audit committee had required officers to list every entity in which they or their families hold interests, and had compared that list with the vendor master file, the trust would have appeared in the first year. That safeguard does not depend on the chief executive's candor; it depends on a list and a match.
A truly independent financial expert would likely have caught it second, because an outsider reviewing lease expense would have asked who the landlord was. Separating the chair and chief executive roles would have helped, but more slowly: an independent chair sets agendas, but still needs a reason to put the leases on one.
Agency theory predicts exactly this failure: when the people monitoring management are chosen and briefed by management, monitoring weakens, and the board becomes an extension of the executive it oversees (Jensen, 1993).
The Auditors' Role
The external auditors also missed the leases for six years, and the critique would be incomplete without asking why. Auditing standards require auditors to identify related parties and to ask management about them. The company's answer each year was that there were none, and the auditors' procedures, a review of the board minutes and the officers' questionnaires, relied on the same sources the chief executive controlled. A search of public property records for the warehouses' owners, or a comparison of rent with market rates, would have found the trust. The audit committee, which oversees the auditors, never asked them to look beyond management's representations. The same dependence on one person's candor ran through the auditors' work as through the board's.
What Directors Owe
Directors owe the company a duty of care, which includes paying attention to information that should prompt questions. Rent that is a third above market on three buildings is the kind of figure an attentive director might notice in a budget review. A board that never asks who its landlord is has not breached any rule by itself, but it has made the rules easy to avoid.
How the Leases Came to Light
The leases surfaced only when a newly appointed director, a former real estate executive, asked during a facilities review why the company paid more per square foot in its oldest warehouses than in its newest. Management's answer, that the older buildings were in better locations, did not match the appraisals she then requested. That sequence is itself instructive. The information needed to find the problem had been in the company's budget every year; what was missing was a director with the knowledge to read it and the independence to ask. Her question cost nothing. Six years of the board's silence cost the shareholders $4.1 million.
Measuring the Harm
The $4.1 million of excess rent is the direct cost. The indirect costs may be larger: the company must now restate its disclosures, its share price fell when the leases were reported, and investors will discount the board's assurances on other matters until it shows the changes are real. A governance failure that looks small in the income statement can cost far more in trust.
Recommendations
Adopt a written related-party policy requiring audit committee approval and an annual match of disclosed interests against the vendor master file. Replace the financial expert with a director who meets the independence test without argument. Appoint a lead independent director with power over the agenda. Set a tenure review for directors beyond twelve years. And require the chief executive's trust to renegotiate the leases at appraised market rent or the company to relocate.
References
Financial Accounting Standards Board. (1982). Related party disclosures (Statement of Financial Accounting Standards No. 57). FASB.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48(3), 831-880. https://doi.org/10.1111/j.1540-6261.1993.tb04022.x
New York Stock Exchange. (2024). NYSE listed company manual (Section 303A). NYSE.
Transactions with related persons, 17 C.F.R. § 229.404 (2024).
AC504 Unit 9 instructions, in plain terms
Unit 9 of AC504 asks you to critique a board's governance using a specific failure as evidence. Summarize the conduct with figures and how it came to light. State the disclosure and independence rules that should have applied. Then examine the board's structure piece by piece, such as leadership, committee independence, policies and tenure, explaining how each contributed to the failure. Identify the common thread among the failures. Decide which missing safeguard would have caught the problem first and explain why, comparing it with alternatives. Consider the external auditors' role and the directors' duty of care. Measure the harm, direct and indirect. Close with ranked recommendations. Cite the SEC disclosure rule, the listing standard, the related-party accounting standard and governance research in APA 7.
How the AC 504 Unit 9 example is put together
The sample describes the three leases, two appraisals showing rent 35 percent above market and $4.1 million of excess over six years, with the trust described to the board only as a local landlord. Rules from Regulation S-K Item 404, the accounting standard and the exchange's listing standards follow. The board section examines the combined roles, the financial expert who left the CFO post 26 months before joining, the absent related-party policy and twelve-year tenures. The highlighted sentence names the common thread. A related-party policy matched against the vendor file is chosen as the first safeguard, citing Jensen. Sections on the auditors, how a new director found the leases and the harm precede recommendations.
AC504 Unit 9 rubric: what earns full points
Governance critiques in AC504 earn points for linking specific structural weaknesses to the specific failure. Graders check that disclosure and independence rules are stated correctly and applied to the facts. The rubric rewards analysis that finds a common cause among weaknesses and that compares safeguards on how quickly and reliably each would have exposed the conduct. Attention to the auditors' role and the directors' duty shows breadth. Measuring harm beyond the direct cost demonstrates judgment. The closing recommendations should be ranked in the order the analysis supports. Critiques that list governance best practices without tying them to the leases, or that misstate the independence lookback, lose substantial credit. APA 7 citations to rules and research support the critique.
AC504 Unit 9 help: mistakes that cost points
Common Unit 9 problems include a generic checklist of good governance that never connects to the related-party leases. Independence rules are misstated, such as assuming a former officer is independent after one year. The common cause, reliance on the chief executive's candor, goes unidentified. Recommendations are a long unranked list. The auditors' failure is ignored, though they relied on the same sources. Harm is limited to the excess rent. Students also forget to explain how the leases were finally found, which shows what a working safeguard looks like. If your section's company has a different failure, such as compensation or risk oversight, a writer can critique the board against that conduct.
Get an AC504 Unit 9 example written to your instructions
Identify the company or case the Unit 9 materials describe, attach the rubric and note any governance standards your readings emphasize. The critique inventories the board as it actually operated, tests each safeguard against the conduct, runs an honest counterfactual and ties every recommendation to a gap it found, within 24-48h. No fee applies to your first request; the distributor is a composite. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC504 Unit 9 questions, answered
Would a better board have caught the leases for certain?
Not for certain, and the critique says so. Related-party schemes can hide behind trusts and nominees that a board sees only if someone discloses them. What the counterfactual shows is narrower: a warehouse manager did report the rent, and a hotline routed to an independent committee would likely have put that report in front of directors with reason to act.
Can the critique be about a private company without an audit committee?
Yes, though the standards shift. A private company answers to its lenders, owners and any board it chooses to keep, so the critique would test whatever oversight existed against the conduct and ask what a modest structure, an outside director or an audit committee formed voluntarily, might have added. The same element-by-element method and counterfactual carry over.
Where can I find a free AC504 Unit 9 sample paper?
This page holds a full AC504 Unit 9 governance critique of a composite medical-supply distributor's board after six years of above-market related-party rent, with the rules, a structural analysis, the first safeguard and APA 7 references.
Why is a former CFO not independent on the audit committee?
Listing standards bar treating a director as independent if the company employed him within the past three years. This director had left the CFO role 26 months earlier and had worked for the chief executive for nine years.
Which safeguard would have caught the leases first?
A written related-party policy requiring officers to list every entity they or their families hold interests in, matched each year against the vendor master file. It does not depend on anyone volunteering the answer.