Posted by Desperate on Sunday, September 6, 2009 at 2:57pm.
Please help in verifying stakeholders?
This is for my Final in my Accounting Ethics Class. I do NOT want you to write the paper. I do NOT want you to do the analysis needed for this paper. I just want help verifying the stakeholders in the scenario. I believe the stakeholders are Dan Potter, Oliver Freeman, Baker Greenleaf, and the Sub. I am wavering on the Sub and unsure if there are any other stakeholders I may be missing.
I am not going to copy and paste the entire story because it is a bit lengthy. It initially details the report Senator Lee Metcalf (D-Mont) released in 1976 about the corruption in the accounting industry and some background details about Daniel Potter. Potter excelled in his career, recieving many promotions, and adhered to all laws and regulations about the accounting industry.
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 performance 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 Dan to 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 Doherty, to help him. 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—most of 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 Freeman contained 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 reasserted his 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. He knew 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.
- accounting - Ms. Sue, Sunday, September 6, 2009 at 4:59pm
This article may clarify stakeholders for you.
- accounting - sam, Monday, November 23, 2009 at 5:20pm
I also thought the public was a stakeholder because they bothered to mention Senator Metcalf in the scenario and he is technically a member of (representative of) the public. I also put the rival company because they will get the account if BG fails, although that could be considered just an effect not a whole other stakeholder...
Answer This Question
More Related Questions
- Accounting - Writing - UOIT has recently appointed you to prepare an ...
- Accounting Ethics - I need to write a paper, in which I am critiquing the ...
- Accounting - I can identified two stakeholders Big Eight accounting firm and ...
- Accounting-business - I can identified two stakeholders Big Eight accounting ...
- accounting - You have been asked to speak at a career fair for high school ...
- accounting 205 - •Describe for the students the primary objectives of accounting...
- Accounting - what are the outside factors upon which the conclusions drawn from ...
- Payroll Accounting - Help with my Payroll Accounting Final Project. Class AC122-...
- Accounting-business - Can you please help me on what is their stake in the ...
- accounting - You have been asked to speak at a career fair for high school ...