Ethics Case

In this mini case Mike Stephan is dealing with a very difficult situation because he is new to the accounting firm and wants to impress the superior accountants on his engagement team. While auditing for EarthWear, he makes a little mistake by spending too many hours looking at the wrong bank statements when he is not supposed to go over a total of 6 hours. Pressured by the senior on the audit, he is caught between lying about his hours or telling the truth and going over budget on the audit, potentially causing the other accountants on the team to look bad professionally. The first alternative that I have learned about when addressing ethical issues as a staff auditor would be to talk to the senior on the team and tell him/her exactly what is going on, but the senior is the one telling him to “eat” his hours. Since the manager is also putting pressure on the senior to pretend the extra hours never occurred, Mike needs to go directly to the partner on the team and tell him the issue. Another alternative would be to listen to the senior and “eat time” so the audit doesn’t go over budget and cost the firm’s reputation. A third alternative would be to record the to correct amount of hours spent on the audit.
The pros of telling the partner about the issue would be that Mike followed his duty as a CPA to act professionally and ethically at all times. His actions would be appreciated by the partner on the team . A firm’s most important asset is it’s reputation and if outsiders knew that the firm was lying about the hours spent on auditing then that would lead them to question what other things the firm might be lying about. A pro for “eating hours” would be that Mike and the other engagement accountants receive a good evaluation by not going over the budget and the firm keeps the illusion of working efficiently to the client. For the third alternative, a pro would be that Mike followed the code of ethics and gets recognized for his honesty and treated with more