Ethical Problems and Principles - Case Study Example

ETHICAL PROBLEMS AND PRINCIPLES Ethical dilemmas Auditors are meant to give accurate results on the financial ment of firms. However, in this case, Barbara is faced with a professional dilemma. Delancey fabrics had requested that they audit all the items that cost over $20,000 and a judgment of a few other items that are cheaper. There were about 250 smaller items and thus a representative would be around 50 -70. However, when Barbara presented this information to Jack, she was dismissed and told to use only the first ten small items and ignore the other forty. This was the wrong choice as ten cannot be a fair representation of 250. Furthermore, the forty items had major misstatements and there were to be ignored and therefore not giving the general outlook of the firm. Barbara is faced with the dilemma of knowing this information which is against the code of ethics of auditors. The information that Jack has asked her to present is not the fair outlook of the firm and thus their audit would not be considered conclusive of the firm’s financial records. The fact that she was told to ignore or forget that she ever did anything means that there was something that was not quite right and that there was something to hide and some form of negligence (Lowe, 1999). Jack reprimanded her that she had done something wrong by choosing all the fifty small statements while it was the right thing to do. She already knew that the audit report would not be accurate yet was required to stay silent and let things go as they did. Relevant facts Delancey fabrics required an audit of their finances for the year since they were approaching year end. The audit was done by Green, Thresher and co. who had to do the audit very quickly so that they could meet the deadlines. The audit firm, where Barbara worked was required to make audits of all the items over $20,000 and a representative of the smaller items which were about 250. Barbara made a decision to work on 50 small items and this seemed like a reasonable decision. She made the decision on her own since Jack was not around to give her a correct figure that she should have worked on in the first place. After working on the fifty small items, she presented them to jack who dismissed the last forty items most of which had many miscalculations. The decision to only have the first ten of the small items was definitely not wise (Morrison, 2004). Jack asked her to forget about them and tear them up. Fact is the company had to go over the audits in a very short time and thus mistakes were bound to be made. However, in this case, it seems like Jack intentionally needed to have the forty items out of the audit. It could also be speculated that Jack was aware of any form of corruption that was going on in the company and had further instruction to ensure that they did not appear in the audit. Barbara being a junior employee was confused over what to do since she was already aware of the false misrepresentations that her senior was not ready to admit. Constituency affected and people concerned The first constituency that is affected is the integrity issue. Auditors are meant to maintain integrity as the developments of firms usually depend on the reports given by the audits (Reynolds, 2002). Jack breached the integrity rule when he said that he would handle he inaccurate report. Barbara was very responsible when she decided on the number of small items to work on. She did not waste a lot of time waiting for her senior to recommend since they did not have much time to wait. Barbara also showed due diligence by taking the number that she thought was representative of the whole so that she could give the best to the client. She tried as much as she could to give the customer the best services by being very conclusive of most of the things that were required. The people who are involved in the issue include the two companies, Jack and Barbara. Delancey Fabrics will be affected since they will not be able to get the correct audit for their company. They will be forced to either redo he entire audit or use more money to hire another firm do the audit. The integrity of Green, Thresher and Co. will be questioned if the truth ever comes to light. The mistakes that have been made will remain in the records and Barbara will be affected in that she knows the truth and it is her responsibility to ensure that the mistakes are rectified. Jack is affected since his integrity is at stake. He knowingly decided to ignore the smaller items that had problems and used only the ten that had no miscalculations which happens to be a great misconduct and shows that he did not use due diligence in giving the best to the client (Scheiner, 1987). Alternatives There are various options that she could do to correct the situation. The first option that she could take is report the issue to a higher power. As an employee it is her duty to protect the firm from any issues that may affect it in the future. If the firm refuses to hear anything from her, she could choose to quit the firm so that she is not party to any of the bad practices of the company. If she quits the firm, she will be able to save her integrity in the future in any other company. She can choose to tell Jack that she would not be party to the act and thus refuse to get rid of the extra forty items and thus present them to the higher authorities at the auditing firm. She could also choose to take the report to Delancey Fabrics on her own if all the other methods fail. However, she may also decide to do as Jack requested her. She may decide to use this route if she does not want to lose her job or if does not care much about the principles of her profession. If she is only interested in getting promotions then she is likely to do as she has been told so as to get ahead in her profession (Shafer, 2002). Consequences of alternatives If Barbara decides to report the issue to the higher ranking officials in the organization, then she risks them not believing her and as a result victimization. If the higher power is aware of this issue, then they may advise her to keep quiet and do as she has been instructed. However, if the higher ranking authority is not aware of this issue, Jack could be fired from his job and Barbara would be viewed in a positive light by the organization and thus be considered for future promotions. She could also decide to quit the company and if she chooses this option, then she is likely to be jobless in the short run. However, she gets to save her integrity in the long run and thus possibility of getting more jobs. If she out rightly tells Jack that she does not agree with what he is doing, then he could face a lot of victimization from him. She could always be seen as a threat and thus be treated very unfairly as an employee. Reporting directly to Delancey fabrics may be very scandalous and she risks losing everything if she does not have all her facts straight. It means that the audit form may lose a client and some people in both organizations investigated on the issue and fired from their jobs. The easiest option for her to take would be to do as jack had instructed her and throw away the extra forty reports. While this option in the short run may be favorable to her in terms of how she is treated as an employee, she will sacrifice her integrity and she will have to do these things from time to time. Appropriate action and Justification As an auditor, the most appropriate action in this case would be to report Jack to the higher authorities in the firm. In this way, she will get to know of the firm is aware of the deeds or if it is an individual action where if the organization was not aware of the arrangement, then she gets to save the integrity of the firm (Shafer, 2002). However, if she finds out that the entire company was aware of what is going on and thus refuses to do anything about it, then she either has the option to stay in the company and continue acting without any integrity or ethics. If the company was aware of this and refuses to do anything about the issue, then the best decision for Barbara would be to quit the organization. In this way, she gets to save her integrity and with her integrity and professionalism intact, then she is likely to command a lot of respect in the field which in the end leads to more and more clients. Even though quitting seems like the hardest option to take, it would be the most ethical to do if all other interventions fail. References Lowe, D. J. (1999). The effects of internal audit outsourcing on perceived external auditor independence. Auditing: A Journal of Practice & Theory, 7-26. Morrison, M. A. (2004). ‘Rush to Judgment: the Lynching of Arthur Andersen & Co. Critical Perspectives on Accounting, 335-75. Reynolds, K. D. (2002). Professional service fees and auditor objectivity. Working Paper, Louisiana State University. . Scheiner, J. H. (1987). An empirical assessment of the impact of SEC nonaudit service disclosure requirements on independent auditors and their clients. Journal of Accounting Research , 789-797. Shafer, W. E. (2002). Effects of materiality, risk, and ethical perceptions on fraudulent reporting by financial executives. Journal of Business Ethics., 243-262. . Read More