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July 24, 2014

Homework Help: Accounting-business

Posted by Tammy on Wednesday, April 29, 2009 at 11:48pm.

Can you please help me on what is their stake in the ethics case of The Dilemma of an Accountant. And if you can give me some suggestions on what the impacted of my decision to have him turn in his boss and to file a grievence with the accoutning board.

The stakeholder that that I could identified were the Big Eight accounting firm and Baker Greenleaf.

Here is the main part of the story. Sorry it is long.
Thus, when he encountered the first situation where both his boss and his clientseemed to be departing from the rules of the profession, Dan’s moral dilemma was deep-seated and difficult to sThe new assignment began as a welcome challenge.
A long-standing and important account which Baker had always shared with another Big Eight accounting firm needed a special audit, and Baker had reason to expect that a satisfactory performanceolve. might secure it the account exclusively. Baker put its
best people on the job, and Dan was elated to be included on the special assignment team; success could lead to an important one-year promotion.

Oliver Freeman, the project senior, assigned Danto audit a wholly-owned real estate subsidiary (Sub) which had given Baker a lot of headaches in the past. “I want you to solve the problems we’re having with this Sub, and come out with a clean opinion (i.e., confirmation that the client’s statements are presented fairly) in one month. I leave it to you to do
what you think is necessary.”

For the first time Dan was allotted a subordinate, Gene had worked with
the project senior several times before on the same client's account, and he was not wholly enthusiastic
about Oliver’s supervision. “Oliver is completely inflexible about running things his own way—mostof the staff accountants hate him. He contributes a
7:00 A.M. to 9:00 P.M. day every day, and expects everyone else to do the same. You’ve really got to put
out, on his terms, to get an excellent evaluation from him.” Oliver was indeed a strict authoritarian. Several times over the next month Dan and Oliver had petty disagreements over interpretive issues, but when Dan began to realize just how stubborn
Oliver was, he regularly deferred to his superior’s opinion.

Three days before the audit was due, Dan completed his files and submitted them to Oliver for review. He had uncovered quite a few problems but
managed to solve all except one: one of the Sub’s largest real estate properties was valued on the balance
sheet at $2 million, and Dan’s own estimate of its value was no more than $100,000. The property was a run-down structure in an undesirable neighborhood, and had been unoccupied for several years. Dan discussed his proposal to write down the property by $1,900,000 with the Sub’s managers,
but since they felt there was a good prospect of renting the property shortly, they refused to write
down its value. Discussion with the client had broken off at this point, and Dan had to resolve the disagreement on his own. His courses of action were ambiguous, and depended on how he defined the income statement: according to AICPA regulations on materiality, any difference in opinion between the client and the public accountant which
affected the income statement by more than 3 percent was considered material and had to be disclosed in the CPA’s opinion. The $1,900,000 write-down
would have a 7 percent impact on the Sub’s net income, but less than 1 percent on the client’s consolidated
net income. Dan eventually decided that since the report on the Sub would be issued separately (although for the client’s internal use only), the
write-down did indeed represent a material difference in opinion.

The report which he submitted to Oliver Freemancontained a recommendation that it be filed with a
subject-to-opinion proviso, which indicated that all the financial statements were reasonable subject to
the $1.9 million adjustment disclosed in the accompanying opinion. After Freeman reviewed Dan’s files, he fired back a list of “To Do’s,” which was the
normal procedure at Baker Greenleaf. Included in the list was the following note:

1. Take out the pages in the files where you estimate the value of the real estate property at $100,000.
2. Express an opinion that the real estate properties are correctly evaluated by the Sub.
3. Remove your “subject-to-opinion” designation and substitute a “clean opinion.”

Dan immediately wrote back on the list of “To Do’s” that he would not alter his assessment since it clearly
violated his own reading of accounting regulations. That afternoon Oliver and Dan met behind closed doors.

Oliver first pointed out his own views to Dan:
1. He (Oliver) wanted no problems on this audit. With six years of experience he knew better than
Dan how to handle the situation.
2. Dan was responsible for a “clean opinion.” Any neglect of his duties would be viewed as an act of
irresponsibility.
3. Any neglect of his duties would be viewed as an act of irresponsibility.
4. The problem was not material to the Client (consolidated) and the Sub’s opinion would only be used “in house.”
5. No one read or cared about these financial statements anyway.

The exchange became more heated as Dan reassertedhis own interpretation of the write-down, which was that it was a material difference to the Sub and a
matter of importance from the standpoint of both professional integrity and legality. He posited a situation where Baker issued a clean opinion which the client subsequently used to show prospective buyers
of the property in question. Shortly thereafter the buyer might discover the real value of the property
and sue for damages. Baker, Oliver, and Dan would be liable. Both men agreed that such a scenario was
highly improbable, but Dan continued to question the ethics of issuing a clean opinion. He fully understood
the importance of this particular audit and expressed his loyalty to Baker Greenleaf and to Oliver, but nevertheless believed that, in asking him to issue knowingly a false evaluation, Freeman was transgressing the bounds of conventional loyalty.
Ultimately a false audit might not benefit Baker Greenleaf or Dan.

Freeman told Dan he was making a mountain out of a molehill and was jeopardizing the client’s account
and hence Baker Greenleaf’s welfare. Freeman also reminded Dan that his own welfare patently depended on the personal evaluation which he would
receive on this project. Dan hotly replied that he would not be threatened, and as he left the room, he
asked, “What would Senator Metcalf think?”

A few days later Dan learned that Freeman had pulled Dan’s analysis from the files and substituted a clean opinion. He also issued a negative evaluation of Daniel Potter’s performance on this audit.
Dan knew that he had the right to report the incident to his partner counselor or to the personnel
department, but was not terribly satisfied with either approach. He would have preferred to take
the issue to an independent review board within the company, but Baker Greenleaf had no such board.
However, the negative evaluation would stand, Oliver’s arrogance with his junior staff would remain unquestioned, and the files would remain with Dan’s name on them unless he raised the incident with someone.

He was not at all sure what he should do. Heknew that Oliver’s six years with Baker Greenleaf counted for a lot, and he felt a tremendous obligation to trust his superior’s judgment and perspective. He
also was aware that Oliver was inclined to stick to his own opinions. As Dan weighed the alternative,
the vision of Senator Metcalf calling for nationalization continued to haunt him.

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