July 25, 2010
Solving Ethical Dilemmas in the Accounting Profession
This dilemma in this ethical case is whether or not Daniel Potter (Dan), staff accountant for Baker Greenleaf accounting firm, should report unethical changes his immediate supervisor, Oliver Freeman, made to an audit report. The problem is that a large piece of real estate was valued on the balance sheet at $2 million. Dan had estimated the property at $100,000. Dan based his value estimate on the condition, location, and how long the property had been vacant. He approached the managers of the subsidiary with a proposal to write down the value of the property by $1,900,000. The managers refused to the write down and commented that currently there was a prospective tenant for the parcel (Brooks, 2007). The American Institute of Certified Public Accountants (AICPA) has materiality regulations. Those regulations say that if there is a difference of opinion between the client and the auditor that affects the net income by more than 3%, then that difference is material and must be disclosed in the Certified Public Accountants (CPA) opinion. This specific client is a subsidiary of a larger company. The material difference to the subsidiary is a 7% impact to the net income, although the impact to the parent company’s consolidated net income is only 1%. Dan turned in the report with the subject to opinion designation because his client is the subsidiary and the material difference was more than the 3% allowed by AICPA regulations. He took his concerns to Oliver Freeman and was told to remove the subject to opinion designation as well as the pages relating to his estimated value of the piece of property. He was also told to issue a clean opinion and state that the real estate values are correct. Dan stuck to his fiduciary duties of integrity, honesty, and legality by submitting the report with...