Business Ethics: Ignore the Error?
ACCOUNTING MINICASE: ACCT – 17
TEACHING NOTES
BUSINESS ETHICS PROGRAM
Ignore the Error?
Teaching Notes
What Are the Relevant Facts?
1.
Kelsey, the audit senior, knows a material cutoff error exists in Compo’s financial statements.
2.
Compo, a major client of the CPA firm, does not want to make an adjustment for the cutoff error.
3.
4.
What Are the Ethics of the Alternatives?
•
Contrary to the firm’s policy, Bruce, the audit manager, has asked Kelsey not to document the cutoff error.
What Are the Ethical Issues?
1.
2.
Kelsey has a professional responsibility to document proposed material audit adjustments.
Kelsey has been asked by the supervisor to ignore this requirement. Should Kelsey violate professional and personal standards of integrity to comply with the request?
•
•
•
•
•
•
•
What responsibility does Kelsey have to inform affected parties of the request to violate firm policy? Who Are the Primary Stakeholders?
Kelsey, the audit senior
Bruce, the audit manager
The partner in charge of the audit and the entire
CPA firm
The owners of Compo Corporation (family members or others holding shares in the company)
Third-party users of Compo’s financial statements
Compo Corporation employees
•
1.
Not document the cutoff error as requested.
2.
Document the error but rationalize that it is not material. 3.
Document the cutoff error in compliance with firm policy. 1.
What are the benefits and costs to each stakeholder? 2.
Do the net benefits exceed the net costs to all stakeholders? Based on a “rights” perspective, for each alternative: 1.
What are the rights of each stakeholder?
2.
What are the responsibilities of Kelsey, Bruce, the CPA firm, and Compo?
3.
Which alternative would you prefer if you were relying on Compo’s financial statements for decision making?
Considering a “justice” point of view, for each alternative: 1.
For each stakeholder, what are the burdens and benefits
2.
Which alternative most fairly distributes the
TEACHING NOTES
BUSINESS ETHICS PROGRAM
Ignore the Error?
Teaching Notes
What Are the Relevant Facts?
1.
Kelsey, the audit senior, knows a material cutoff error exists in Compo’s financial statements.
2.
Compo, a major client of the CPA firm, does not want to make an adjustment for the cutoff error.
3.
4.
What Are the Ethics of the Alternatives?
•
Contrary to the firm’s policy, Bruce, the audit manager, has asked Kelsey not to document the cutoff error.
What Are the Ethical Issues?
1.
2.
Kelsey has a professional responsibility to document proposed material audit adjustments.
Kelsey has been asked by the supervisor to ignore this requirement. Should Kelsey violate professional and personal standards of integrity to comply with the request?
•
•
•
•
•
•
•
What responsibility does Kelsey have to inform affected parties of the request to violate firm policy? Who Are the Primary Stakeholders?
Kelsey, the audit senior
Bruce, the audit manager
The partner in charge of the audit and the entire
CPA firm
The owners of Compo Corporation (family members or others holding shares in the company)
Third-party users of Compo’s financial statements
Compo Corporation employees
•
1.
Not document the cutoff error as requested.
2.
Document the error but rationalize that it is not material. 3.
Document the cutoff error in compliance with firm policy. 1.
What are the benefits and costs to each stakeholder? 2.
Do the net benefits exceed the net costs to all stakeholders? Based on a “rights” perspective, for each alternative: 1.
What are the rights of each stakeholder?
2.
What are the responsibilities of Kelsey, Bruce, the CPA firm, and Compo?
3.
Which alternative would you prefer if you were relying on Compo’s financial statements for decision making?
Considering a “justice” point of view, for each alternative: 1.
For each stakeholder, what are the burdens and benefits
2.
Which alternative most fairly distributes the