Question

In: Accounting

Barbara Young had great expectations about her future as she sat in her graduation ceremony in...

Barbara Young had great expectations about her future as she sat in her graduation ceremony in May 2013. She was about to receive her Master of Accountancy degree, and next week she would begin her career on the audit staff of Greene, Sims, and & Co., CPAs.

Things looked a little different to Barbara in February 2014. She was working on the audit of Dee-Dee Fashion Fabrics, a textile manufacturer with a calendar year-end. The pressure was enormous. Everyone on the audit team was putting in 70-hour weeks, and it still looked as if the audit would not be done on time. Barbara was doing work in the property area, vouching additions for the year. The audit program indicated that a sample of all items over $25,000 should be selected, plus a judgmental sample of smaller items. When Barbara went to take the sample, Daniel Dean, the senior, had left the client’s office and could not be reached to answer her questions about the appropriate size of the judgmental sample. Barbara forged ahead with her own judgment and selected 50 smaller items. Her basis for doing this was that there were about 250 such items, so 50 was a reasonably good proportion of such additions.

Barbara audited the additions with the following results. The items over $25,000 contained no misstatements; however, the small items contained a large number of misstatements. In fact, when Barbara projected the misstatements to all such additions, the amount seemed quite significant.

A couple of days later, Daniel Bean returned to the client’s office. Barbara brought her work to Daniel in order to apprise him of the problems she found and got the following response

            “My gosh, Barbara, why did you do this? You were only expected to look at items over $25,000    plus 5 or 10 little ones. You’ve wasted a whole day on that work, and we can not afford to spend any more time on it. I want you to throw away the schedules where you tested the last 40 small items and forget you ever did them.”

When Barbara asked about the possible audit adjustment regarding the small items, none of which arose from the first 10 items, Daniel responded by shouting,

“Don’t worry, it is not material anyway. You just forget it. It is my concern, not yours.”

IDENTIFY THE ETHICAL ISSUES

DETERMINE THE AFFECTED PARTIES AND IDENTIFY THEIR RIGHTS

DETERMINE THE MOST IMPORTANT RIGHTS

DEVELOP ALTERNATIVE COURSES OF ACTIONS

DETERMINE THE LIKELY CONSEQUENCES OF EACH PROPOSED COURSE OF ACTION

ASSESS POSSIBLE CONSEQUENCES INCLUDING ESTIMATION OF THE GREATEST GOOD FOR THE GREATEST NUMBER

Solutions

Expert Solution

IDENTIFY THE ETHICAL ISSUES

  • Barbara was demotivated to work according to her will
  • Inspite of finding the issues on the statements of the smaller items, Daniel did not take any action, instead shouted on Barbara
  • When the top management is behaving irresponsibly, same would be passed along to the new joinees
  • The very purpose of audit was not being fulfilled

DETERMINE THE AFFECTED PARTIES AND IDENTIFY THEIR RIGHTS

  • The affected party was Barbara
  • Barbara's job was to report any misconduct performed by the Dee-Dee Fashion Fabrics
  • Barbara was performing her duty as a auditor
  • Barbara had all the rights to act according to her will and to decide the audit process in absence of Daniel

DETERMINE THE MOST IMPORTANT RIGHTS

  • Right of Ownership of the process is the most important right
  • If an employee posseses a sense of ownership for the company he/she is working in, then he would perform the job keeping in mind as if he is completely responsible for the company's image
  • Right to posses independent decision making abilities enables a person to work according to his will

DEVELOP ALTERNATIVE COURSES OF ACTIONS

  • When Barbara went to Daniel to report the misstatement of 50 smaller items, Daniel should have taken action against the Dee-Dee Fashion Fabrics
  • Daniel should have appreciated Barbara for going out of the course and finding the misconduct by Dee-Dee Fashion Fabrics
  • Barbara should have been recognized by Greene, Sims, and & Co., CPAs
  • Strict action should have been taken against Dee-Dee Fashion Fabrics

DETERMINE THE LIKELY CONSEQUENCES OF EACH PROPOSED COURSE OF ACTION

  1. When Barbara went to Daniel to report the misstatement of 50 smaller items, Daniel should have taken action against the Dee-Dee Fashion Fabrics
  • This action of Daniel would have ensured that Barbara is always motivated to work on what she feels liable to and feels motivated

2. Daniel should have appreciated Barbara for going out of the course and finding the misconduct by Dee-Dee Fashion Fabrics

  • This would have ensured Barbara's sheer commitment for her future endeavours

3. Barbara should have been recognized by Greene, Sims, and & Co., CPAs

  • Barbara would have felt a sense of ownership
  • Barbara would have developed a sense of ethics

4. Strict action should have been taken against Dee-Dee Fashion Fabrics

  • This would have ensured that Dee-Dee Fashion Fabrics would not have misconducted their transactions in future

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