Acc260 Solving Ethical Dilemmas in the Accounting Profession

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Final Project: Solving Ethical Dilemmas in the Accounting Profession Laurie Searing ACC/260 July 25, 2010 Hope Piggee 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 the subject to opinion designation for the property. Oliver consequently replaced Dan’s opinion with a clean opinion. He also gave a negative review of Dan’s performance that would void Dan the opportunity of an early promotion (Brooks, 2007). This case has four primary stakeholders. Daniel Potter, the auditor, is interested in a long – term career with Baker Greenleaf and upholding strict ethical values. Oliver Freeman, Dan’s immediate supervisor, wants to keep his prominent position in the company and secure the client account wholly for Baker Greenleaf. Currently the accountant is shared with another firm. The third stakeholder is the subsidiary’s managers. They are aware of the misstatement on the value of the property in question, but they still want a clean opinion in the audit. Baker Greenleaf is the last stakeholder. They are interested in obtaining the client account for themselves as well as maintaining an exemplary reputation they have earned over the years (Brooks, 2007). Dan realizes his name is on a clean opinion for that audit and is not comfortable with the actions that have been taken by Oliver Freeman. He should start with speaking to someone in-house about his concerns. His choices are someone in personnel, or his partner counselor. While he is uneasy about either of these options, he must choose one because Baker Greenleaf does not have an independent review board within their company as some other companies do. If his concerns are not dealt with appropriately in-house he will have to report the matter to the governing bodies of the accounting profession. He must take action because the changes made in his name go against the codes of professional conduct and ethics that he values (Brooks, 2007) The philosophical approaches used in this decision were a combination of deontology and virtue ethics. According to Brooks, (2007), “Kant would argue that lying would not be a good rule because others following the same rule would lie to you – an eventuality you would not want” (chap. 5, p. 331). Additionally, deontological reasoning teaches that we are to use principles, moral standards, and rules as well as respecting the duties and obligations when making ethical decisions. Brooks (2007) states, “virtue ethicists are concerned with the motivating aspect of moral character demonstrated by decision makers” (chap. 5, pg. 332). Both of these approaches lead decision makers to “enlightened self interest” instead of self-serving fulfillment. These are traits that Dan feels very strongly about, apparently Oliver does not. Dan could easily let the matter go and work on rebuilding his reputation with the company after the negative review from Oliver and the matter would be over. What if someone were to buy that piece of property and discover it was only worth $100,000 when the audit eport clearly states that the property was worth $2 million? Dan could be blamed for the misstatement and could be held liable by the buyer and the professional communities to which he belongs. If he does say something about the conduct of Oliver he could lose his job as well as his reputation in his professional career. The impact of his decision on the stakeholders involved is hard to determine. Baker Greenleaf would, hopefully, investigate the matter and could find background information to back up Dan’s accusations, or they already know and will sweep it under the rug. It is also possible that Dan and/or Oliver could lose their jobs. The repercussions to the management of the subsidiary could range from loss of jobs to disciplinary actions by the senior officers of the consolidated company. Baker Greenleaf is one of the top eight accounting firms. They have worked hard for their reputation. If this account was solely the responsibility of Baker Greenleaf and these types of issues arose again, which could prove to be dangerous to the company. That is an outcome no one would want. The facts of the case are simple: Dan wrote one report with a subject to opinion designation and Oliver replaced some of the pages with a clean opinion that he wanted in the report. Dan must report this action to someone higher in the company than Oliver is. If that does not work, then he must report the situation to the AICPA because of the violations of the codes of conduct on Oliver’s part. References Brooks, L. J. (2007). Business & professional ethics for directors, executives, & accountants (4th ed. ). Mason, OH: Thomson Southwestern. Retrieved July 22, 2010 from University of Phoenix Student Website

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