Question

You are a sole practitioner of a public accounting firm you started after spending five years with a Big Four accounting firm. You’ve been enjoying steady growth the entire time, to the point that you’re considering hiring a CPA to help with the business you’re gaining. You used to provide a range of accountancy services for Bremerton Hardware, a small company that owns and operates a hardware store in the town where you practice. Much to your surprise Bremerton Hardware solicited bids from other public accounting firms and chose to switch to a different practice for its accounting needs. You believe that you were unsuccessful in the proposal and selection process on the basis of cost alone, as Bremerton Hardware is not very profitable, and suffers from the competition of another hardware business in a neighboring town, Byer’s Hardware. Both you and the other accounting firm Bremerton Hardware has now employed have been asked to propose a fee schedule for a due diligence evaluation for the possible purchase of Byer’s Hardware.

In addition, you are providing continuity for another local sole practitioner in your town. Two months ago he suffered a heart attack, and so you are currently acting for a number of his clients. He is not expected to resume practicing for another three months. Your formal agreement is in effect the entire period.

One of the client businesses of the incapacitated practitioner, Speedy Electric, operates a shop selling electrical appliances. The director and majority shareholder of Speedy Electric has called you to arrange a meeting to discuss a business venture that she is considering. At the meeting, the client explains that she intends to make an offer to purchase Byer’s Hardware, the same small hardware business that Bremerton Hardware is seeking to acquire. She is aware that there is another bidder for the business, but is unaware that it is Bremerton Hardware, or that Bremerton Hardware used to be your client.

When the meeting is over, you start to feel uneasy. You want to help Speedy Electric and provide an important service on behalf of the practitioner for whom you are the continuity provider. But you realize that you are also in possession of confidential information concerning the plans of your previous client, Bremerton Hardware.

What are three ethical accounting issues presented in this case?

Answer 1

The ethical accounting issues that are presented in this case are with regards to conflict of interest. Here conflict of interest is arising due to the fact that you, in your capacity as a sole practitioner of a public accounting firm and in your capacity as provider of continuity for another local sole practitioner, is in possession of confidential information.

In this case as you are in possession of confidential information this will hamper your ability to maintain objectivity and independence. Being a CPA you have the responsibility to maintain objectivity and to be free of conflicts of interest while discharging your professional responsibilities.

Integrity will also be/can also be compromised due to this. The fact that you have access to information might tempt you to manipulate the figures being presented during the bid for purchase so that you can optimize your business and commercial interest.

Thus the three ethical accounting issues that are presented in this case are:

· Conflicts of interest

· Confidentiality

· Pressure/Temptation to manipulate figures when preparing bid for purchase