Accounting Business Ethics - Report Example

The truth and consequences case involves two players: A CPA, Bill Downer, who is responsible for an audit of Minter Metroplex and the controller of the company Dawn Sunshine. Mrs. Sunshine used to work with Bill as a staff accountant a few years ago. They had an intimate relationship which recently Bill tried to renew. Dawn had no interest in getting back together with him. During the audit Mr. Downer found out that the gross margin of the company had been materially understated. The root of the problem was a failure to record a lower cost of market (LCM) inventory adjustment to the perpetual records in the amount of $300,000. The case presents ethical dilemmas original caused by errors committed by the controller. She realized that the understatement of in the financial position of the company caused a series of events which caused disturbance within the company. Three employees were laid off because of the poor financial performance and the company failed to pay a $20,000 option contract on a land assets. She was scared that if management found out she would be released from her position. The auditor had a previous personal relationship with the controller and there was an inherent temptation to look the way and hide the truth. Bill Donner decided to help Dawn out and report that a $300,000 correction be disguised as a reinterpretation of the uniform capitalization rules. Bill Donner violated the generally accepted accounting principle (GAAP) of objectivity. The objectivity principle states that accounting entries will be based on facts and not on personal opinion or feelings. He knew what the adjustments was based on, and let personal feelings affect his accounting judgment. The stakeholders affected by the decision made were the stockholders and management of Minter Metroplex, the CPA firm contracted, and the accounting profession. The stockholders lost value in their investment when a valuable land option contract was lost. The management of the company was misled about the true economic condition of the company. The CPA firm reputation was put in risk if anybody finds out about the fraud. The accounting profession always loses credibility when accountants refuse to follow its GAAP. Two possible alternative solutions to the scenario were the following. Mr. Donner could have reported the true facts to management and let them decide the appropriate course of action, if any for the controller errors. If Mrs. Sunshine lost her job due to her job due to her mistakes, Bill could have offer her to come back to work for her. Another alternative solution was for Mr. Donner to hide the $300,000 needed correction altogether and make a hidden plan with Mrs. Sunshine on how to fix the problem in a series of entries over time to balance out the books eventually. This alternative would create a full fraud scheme that could jeopardize both of their careers if anybody found out about the scheme. My best case scenario for this case would for the Mr. Donner to tell the management team the truth about the audit findings. He should explain to them that the audit findings are beneficial for the company and he should try to protect his friend. He also should point out that these types of accounting errors are very common in the industry and it does not mean that the controller is doing a bad job. Standing up for Mrs. Sunshine with the truth is the best way for him to do his job in an ethical manner and provide assistance for his colleague. The Whatever Happened to All Those Credit Slips case is about an internal audit that occurred in a company called Dalton Enterprises. The company was founded and owned by William Dalton. Last year he made his son, Chauncy Dalton, vice-president of finance of the company. Tim Johnson is the CPA in charge of the annual internal audit for administrative control purposes. The audit revealed that the company’s travel and entertainment expenditure account was $20,000 higher than last year. The audit trail pointed that transactions made by Chauncy caused the increase in expenditures. The ethical dilemma in this case is based in the decision the auditor has to make of accusing the son of the owner of some wrongdoing. The supporting documentation for the transactions made by Chauncy was sketchy or non-existent. To further complicate the situation the controller did not take back up the auditors findings and seemed unconcerned about the incident altogether. The generally accepted accounting principle (GAAP) which the case violated is the business entity concept. The business entity concept stipulates that the accounting of a business or entity must be kept separate from the personal affairs of its owner. When transactions are recorded any personal expenditure of the owner are charged to the owner and are not allowed to affect the operating results of the business. Chauncy was utilizing the travel and entertainment account for his own personal use, thus as the son of the owner his personal expenditures were affecting the operating results. Tim Johnson is one of the stakeholders affected by the situation. He followed GAAP and acted in a professional manner by revealing the inconsistency in spending behavior with the travel and entertainment account. His honesty caused a lost in trust of an important executive in the company and may cause him his job in the long-run. If the company has any minority investors they are affected by Chauncy’s action because the net income of the company is going down by his personal spending. He has only been vice-president for a year, his spending habits will probably just increase as the years go on. The scenario had other possible courses of action which could have deliver a different outcome. One possibility was for Tim Johnson to follow a different procedure and discuss privately with William Dalton his audit findings. The father would then decide if he wanted the rest of the staff to learn about the finding or simply forget about it. The consequence of such action is that William would be managing the financial affairs of the company, which is his son job. If the information was hidden then the auditor would be violating GAAP. Another option for the auditor was to completely disregard the finding and keep the information to himself. This alternative has the consequence of next year finding further complications with the personal expenditures of Chauncy. The accounting profession is self-regulated. An accountant has to follow sound ethical judgment in conformity with GAAP in his decision making process. My best case scenario for this case is for Tim Johnson to speak about the manner but instead of challenging the vice president of finance he should speak to him to educate him about the issue. The company could compensate him with a monthly allowance in addition to his regular salary. Tim should explain to Chauncy that as vice president of finance he is supposed to lead by example. Read More