Deck 4: Ethical Responsibilities of Accountants

Question 1

Assume that you were Jess in the second hypothetical scenario presented in this case. How would you respond to your friend's suggestion that you become a controlled informant for the IRS Identify the parties that would be affected by your decision and the obligations you would have to each.

Answer 1

If the accountant in the case were to become an "informant," the following parties would be affected.
• Client : the accountant has a confidentiality privilege with the client, and moving to an informant status would likely compromise the integrity of his commitment to his client.
• Family members : In this case, the decision to become an informant might have a significant impact on the family's lifestyle, finances and relationships.
• Firm members : The decision to become an informant for the IRS might negatively impact his firm and its members, particularly if the information were to become public record. There might be embarrassment and/or a significant loss of clients.
• Accounting professionals as a whole : Standards for professional behavior exist in part to protect the credibility of a profession as a whole. It is possible that the decision to become an IRS informant might create a negative bias towards the accounting profession.

Question 2

Before interviewing with the two St. Louis accounting firms, did Arvel have an obligation to inform them that he had an outstanding job offer from a Big Four practice office in Kansas City Why or why not

Answer 2

The student does not have a responsibility to inform potential employers that one has an outstanding offer as the student has told the other firm that he had not made a final decision about whether to accept their offer. If asked by the potential firm whether the student had any offers, the student could disclose the offer, but he is not responsible to disclose that information.

Question 3

Define what is meant by the phrase "succession planning." How was succession planning relevant to this case

Answer 3

Succession planning is identifying and preparing a lower ranked executive to be ready to accept a higher ranked position. It is happened when the higher ranked employee resigns from his position. The importance of succession planning is that it will prepare a lower ranked employee to step in to the shoes of a higher ranked employee in case a vacancy takes place. It is done so that the functioning of the firm will go on smoothly as usual.
The concept is important for the case because, the vice president and the chief financial officer resigned from the company. It is being an important position for the company the company will lose in case it is not able to find a suitable replacement quickly. This will not happen in case the firm had identified a suitable employee through succession planning. He can take up the position and the company can function normally.

Question 4

Jon Fries (CEO), Fletcher Anderson (COO), Craig Schuster (CFO), and Catherine Sprauer (division controller) were the four central figures in this case. Identify the key responsibilities associated with the professional roles these individuals occupied. Briefly describe the type and extent of interaction each of these individuals likely had with F C's independent auditors.

Question 5

Did Arvel Smart behave unethically by accepting the internship with the St. Louis accounting firm when he intended to accept the outstanding job offer from the Big Four accounting firm at the completion of that internship Defend your answer.

Question 6

Using the scale shown below, evaluate the conduct of the four key individuals discussed in this case. Be prepared to defend your answers.

Question 7

Explain the meaning of the phrase "client confidentiality" in the context of a CPA 's ethical responsibilities. In your opinion, did David Quinn violate the accounting profession's client confidentiality rule

Question 8

F or a moment, step into the shoes of Catherine Sprauer. What would you have done during and following each of the confrontations she had with the two employees who insisted that F C executives were involved in a fraudulent scheme to misrepresent the company's financial statements

Question 9

Assume the role of Debbie Woodruff. How would you have handled the situation that arose in the restaurant

Question 10

Craig Schuster resigned as F C's CFO on January 1, 1993. Apparently, Schuster did not reveal to any third parties the concerns he had regarding F C's accounting records and previous financial statements. In your opinion, did Schuster have a responsibility to inform someone of those concerns following his resignation Defend your answer

Question 11

Did Debbie have a responsibility to report David's behavior to a superior in her practice office or to anyone else Why or why not Did Debbie have a responsibility to determine whether her firm's tax department was providing appropriate professional advice regarding the deductibility of the entertainment expenses being claimed by David's client

Question 12

Assume that you, rather than Fletcher Anderson, were F C's COO in December 1992. What would you have done upon receiving the list of Warehouse Q inventory from Craig Schuster

Question 13

Define the phrase "earnings management." Under what conditions, if any, is earnings management acceptable Do auditors' responsibilities include actively searching for instances of earnings management by clients Defend your answers.

Question 14

What would you do if you found yourself in a situation similar to that faced by Suzette in this case

Question 15

Dell recorded the exclusivity payments as an offset or reduction to its operating expenses. What "management assertion" did that accounting treatment violate What audit procedure or procedures might have resulted in the discovery of that accounting treatment

Question 16

Do you believe that it was appropriate for Suzette to report the alleged theft ring to a store manager Would it have been unethical for Suzette not to report the rumored theft ring

Question 17

During the time frame that Intel was making exclusivity payments to Dell, Dell's business model was being adversely affected by the increasingly competitive nature of the PC industry. What responsibility, if any, do auditors have to analyze a client's business model Do auditors have a responsibility to track and analyze key developments in a client's industry Defend your answers.

Question 18

Accounting majors are preparing to enter a profession recognized as having one of the strongest and most rigorously enforced ethical codes. Given this fact, do you believe that accounting majors have a greater responsibility than other business majors to behave ethically

Question 19

What ethical issues do exclusivity agreements such as that between Dell and Intel raise Are there analogous ethical issues faced by audit firms and their clients Explain.

Question 20

Briefly discuss internal control activities that might have prevented the theft losses suffered by Bertolini's.

Question 21

Identify the parties who had a stake in, or would be affected by, the outcome of the ethical dilemma faced by William Makadok in 1990. What obligation, if any, did Makadok have to each of these parties

Question 22

Identify the specific circumstances under which auditors are allowed to provide confidential client information to third parties.

Question 23

Place yourself in William Makadok's position. Would you have responded differently than he did to the circumstances he faced Explain.

Question 24

Suppose that you and a close friend are employed by the same accounting firm. You are assigned to the firm's audit staff, while your friend is a consultant who works on M A engagements. What would you do under the following circumstances: (1) your friend discloses to you highly confidential "marketmoving" information regarding a soon-to-be announced merger; (2) your friend not only discloses such information to you but also informs you that he or she plans to use it to make a "quick" profit in the stock market In your responses, comment on your ethical responsibilities in each scenario.

Question 25

The SEC did not criticize Accuhealth's independent auditors in the various enforcement releases issued concerning the company's fraudulent schemes. Under what general circumstances should auditors not be held at least partially responsible for such schemes Defend your answer.

Question 26

E Y was providing a consulting service to The Blackstone Group in connection with its planned acquisition of Freescale Semiconductor. Explain how a CPA's professional responsibilities differ between consulting engagements and audit engagements.

Question 27

What specific audit procedures might have led to the detection of Accuhealth's fraudulent cash and inventory schemes

Question 28

Place yourself in Wiley's position. How would you respond to the "Arrests and Convictions" question Before responding, identify the decision alternatives available to you.

Question 29

The "control environment" is generally considered the most important component of any organization's internal control process. Defend that generalization. Use examples from this case to support your answer.

Question 30

Do CPA s who provide accounting, taxation, and related services to small businesses have a responsibility to serve as the "moral conscience" of those clients Explain.

Question 31

Suppose that Wiley does not disclose the citation he received. A few weeks after going to work for his new employer, Wiley is called into the OMP's office. The OMP tells Wiley that he recently learned of the minor-in-possession citation that Wiley had been given. The OMP then hands Wiley a copy of the Arrest and Convictions form that he completed after receiving the job offer from the firm. How should the OMP deal with this matter How, if at all, should Wiley be disciplined Defend your answer.

Question 32

The AICPA's Code of Professional Conduct includes six broad ethical principles. Which of those ethical principles are most relevant to this case Which of the specific "rules" in the Code of Professional Conduct are most applicable to this case Defend your answers.

Question 33

In a 1984 opinion handed down by the U.S. Supreme Court, Chief Justice Warren Burger noted that "the independent auditor assumes a public responsibility transcending any employment relationship with the client." If this is true, do auditors have a moral or professional responsibility to turn in clients who are cheating on their taxes or violating other laws

Question 34

Assume that Sally Jones was the individual who told the OMP that Wiley had been given a police citation at the graduation party. Do you believe Sally had a moral or ethical responsibility to inform the OMP of that matter Why or why not

Question 35

Identify specific factors that may influence the market value of a given accounting firm. Relying on publicly available sources, identify common methods used to assign a market value to an accounting firm or practice.