Question

The Ethical Case

Fatima Hassan is responsible for the work of compilation, review, and audit clients for Doha CPA firm. She has been assigned a new client, Al-Wajbah Consultation Services Corporation that recently engaged with the firm. The CEO, Ali Mahmoud, makes all major decisions, monitors the operational activities of Al-Wajbah Consultation Services Corporation. This Corporation has not previously used the services of a CPA firm. In addition to the preparation of financial statements, Doha CPA firm will handle tax returns for the corporation.

At her first visit to the client’s office, Fatima Hassan is introduced to Hala Abdulla, a new bookkeeper who is also an accounting student in her final year at a local university. At a subsequent meeting, Hala confides to Fatima that she found the job at the beginning of the semester after an extensive search. Hala really needs the money to help finance her education and feels lucky to have found a good-paying job during the current economic downturn due to the COVID-19 pandemic.

Feeling that Fatima is someone she can talk to and get advice from, Hala describes a situation that has been on her mind for some time now. Hala’s concern relates to the handling of sales revenue. When the proceeds from sales are counted and deposited on a weekly basis, a report is filled out with categories carefully delineating the type of payment: cash, checks, or credit cards. After depositing the weekly total, Ali brings this report back with his own written-in total of the actual amount deposited. After looking over some of these weekly deposits, Hala noticed that 20,000 QR cash was missing from each deposit. After a more thorough inspection of monthly tax documents that Ali has filled out, Hala noticed that the reported monthly gross revenue was 80,000 QR less than what had been actually counted. Ali is the only person handling the money after it has been counted. He is also the only one to deposit the money. When Hala asked Mr. Ali about revenue not being reported, he answered that this is done for tax purposes. He thinks that the auditor will accept this action because Doha CPA firm’s fees for performing the audit and other tax services are paid by Al-Wajbah Consultation Services Corporation. The Requirements: You should answer the following questions:

1. What is/are the ethical issue(s) in the case? Why each is considered an ethical case? 2. Who are the primary stakeholders influenced in the case, explain how? 3. What are the possible alternatives for Hala Abdulla, Fatema Hassan, and Ali Mahmoud? 4. For each alternative above in (Q3), do the net benefits exceed the net costs to all primary stakeholders? Provide your explanations 5. Whose rights are violated in each possible alternative above in (Q3)? Provide your explanations

Answer 1

ONLY FIRST 4 QUESTIONS ANSWERED

Ans-1

The given case has the following ethical issues -

• Personal mingling with auditor on part of Hala.The relation between auditor and auditee have to be completely prefessional.No friendly feelings have a place.Each is to behave as a professional
• Cash syphoning by CEO Ali.CEO is to act in best interest of the Company and actually in agency relation wherein he is entrusted to act on behalf of the stakeholders honestly and in best interest with full professional approach.
• Incorrect tax reportings by CEO Ali.Compliance to regulations is the responsibility of CEO being the person at the top of the hierarchy.Moreso it was done advertantly because when Hala brought to his notice he ignored the issue.
• Expecting the aduit firm to help manage the tax misreportings by ali too is an issue.Auditors are to ensure that accounts represent a True and Fair view and all compliances (financial ) are in place.Their prime responsibilitty is towards the shareholders and other users of the Financials.

Ans-2

Apparently Hala and Ali are the one who seem to be influenced.

Hana because despite observing the issues accepted Ali's explanation for same and kept quiet.She was well capable of contradicting the argument placed by Ali instead she kept it to herself.She seemed to be influenced by the fact that in these pandemic times she got a good job and this feeling influenced her professional duty towards the Organization.

Ali on the other hand being the CEO is not performing his duties honestly and brewing fraud by syphoning cash and incorrect Tax filings

Ans-3

Hala Abdullah should prepare a detailed report of the issues observed but ignored by CEO and submit to Board or Owners

Fatemia should not simply believe Hala's words and invetigate herself the transactions and then conclude.If she finds that the issues are correct with sound evidence she should report in the Audit report.

Ali should not indulge in corrupt practices.he should truthfully explain the gaps in collections and also take help of Auditors for correction of incorrect tax filings.He should also stop expecting auditors to help cover up on the pretext of fee payment.

Ans-4

Yes the benefits exceed the cost for all as there is no benefit bigger than working honestly and professionaly.there could be some financial costs but the gains in terms of professional integrity will be high.