Group Number 8Group Number 8

Jennifer ChanJennifer Chan

Michael EnglishMichael English

Jesse LeeJesse Lee

Nick RosasNick Rosas

Chelsea UnderhillChelsea Underhill

Case 7Case 7

A key factor that an auditor A key factor that an auditor provides is independence. The provides is independence. The

AICPA Code of Professional AICPA Code of Professional Conduct Conduct states that “a member in states that “a member in public should be independent in public should be independent in

fact and appearance when fact and appearance when providing auditing and other providing auditing and other

attestation services.”attestation services.”

Evaluating an Ethical Dilemma: Ethics and Auditor Responsibilities

The The AICPA Code of AICPA Code of Professional ConductProfessional Conduct

““The American Institute of Certified Public The American Institute of Certified Public Accountants is the national, professional organization Accountants is the national, professional organization for all Certified Public Accountants. Its mission is to for all Certified Public Accountants. Its mission is to provide members with the resources, information, and provide members with the resources, information, and leadership that enable them to provide valuable leadership that enable them to provide valuable services in the highest professional manner to benefit services in the highest professional manner to benefit the public as well as employers and clients.the public as well as employers and clients.

In fulfilling its mission, the AICPA works with In fulfilling its mission, the AICPA works with state CPA organizations and gives priority to those state CPA organizations and gives priority to those areas where public reliance on CPA skills is most areas where public reliance on CPA skills is most significant.”significant.”

- - http://www.aicpa.org/About+the+AICPA/AICPA+Mission/http://www.aicpa.org/About+the+AICPA/AICPA+Mission/

1. Jack Jones is a partner with a large audit firm 1. Jack Jones is a partner with a large audit firm and is assigned to the Ford audit. Jack owns 10 and is assigned to the Ford audit. Jack owns 10

shares of the Ford.shares of the Ford.

As an auditor, Jack is responsible for As an auditor, Jack is responsible for examining the financial reports to ensure examining the financial reports to ensure that Ford represent what they claim and that Ford represent what they claim and confirm generally accepted accounting confirm generally accepted accounting principles. Even though he owns shares principles. Even though he owns shares

from the company, he is still compromising from the company, he is still compromising his independence with the company. He can his independence with the company. He can lie or change the financial reports, therefore lie or change the financial reports, therefore

earning more than what he should be earning more than what he should be getting. getting.

2. Jane Winkler has invested in a mutual fund 2. Jane Winkler has invested in a mutual fund company that owns 500,000 company that owns 500,000

shares of Sears stocks. She is shares of Sears stocks. She is the auditor of Sears. the auditor of Sears.

As an auditor Jane examines the financial As an auditor Jane examines the financial reports of Sears to ensure that they represent reports of Sears to ensure that they represent what Sears claim and conform with the GAAP. what Sears claim and conform with the GAAP. (Generally Accepted Accounting Principles) By (Generally Accepted Accounting Principles) By

investing in a mutual fund that has a large investing in a mutual fund that has a large chunk of Sears stock Jane is compromising her chunk of Sears stock Jane is compromising her

independence with the company. When independence with the company. When checking Sears’s financial records she could checking Sears’s financial records she could possibly alter or lie about her findings in her possibly alter or lie about her findings in her

report so she can indirectly earn more money report so she can indirectly earn more money through her mutual fund. through her mutual fund.

3. Bob Franklin is a clerk/typist who works on 3. Bob Franklin is a clerk/typist who works on the audit of AT&T. He has just inherited 50,000 the audit of AT&T. He has just inherited 50,000

shares of AT&T stock. (Bob enjoys his work and shares of AT&T stock. (Bob enjoys his work and plans to continue despite his new wealth.)plans to continue despite his new wealth.)

There is a lack of independence due There is a lack of independence due to the fact that Bob inherited a large to the fact that Bob inherited a large share of stock from AT&T. He can no share of stock from AT&T. He can no

longer audit for the company longer audit for the company because he is compromising his because he is compromising his

independence with the company. He independence with the company. He could alter the financial records could alter the financial records

which would increase his earnings, which would increase his earnings, more than his share. more than his share.

4. Nancy Sodoma worked on weekends as the 4. Nancy Sodoma worked on weekends as the controller for a small business that a friend controller for a small business that a friend

started. Nancy quit the job in midyear and now started. Nancy quit the job in midyear and now has no association with the company. She works has no association with the company. She works

full-time for a large CPA firm and has been full-time for a large CPA firm and has been assigned to do the audit of her friend’s business.assigned to do the audit of her friend’s business.

Nancy…the CPANancy…the CPA

Nancy's relationship with the company's entrepreneur Nancy's relationship with the company's entrepreneur suggests lack of independence.  On one level, suggests lack of independence.  On one level, Nancy's integrity could be compromised as a favor to a Nancy's integrity could be compromised as a favor to a friend.  As big boss, Nancy's friend would have much friend.  As big boss, Nancy's friend would have much incentive, and conceivably ample means to coax incentive, and conceivably ample means to coax favorable audit results from Nancy.  Furthermore, her favorable audit results from Nancy.  Furthermore, her former employment for this company brings her ties to former employment for this company brings her ties to it even closer.  Her position as controller could very it even closer.  Her position as controller could very well have produced friendship with other accountants well have produced friendship with other accountants or bookkeepers at her friend's business.  The fact that or bookkeepers at her friend's business.  The fact that her position at this business was finance-related would her position at this business was finance-related would severely diminish any credibility she would aspire for severely diminish any credibility she would aspire for now as this company's hired "independent" auditor.  now as this company's hired "independent" auditor.  Both Nancy's personal and professional ties to this Both Nancy's personal and professional ties to this company should disqualify her eligibility as an auditor company should disqualify her eligibility as an auditor for this company. for this company.

5. Mark Jacobs borrowed $100,000 for a home 5. Mark Jacobs borrowed $100,000 for a home mortgage from First City National Bank. The mortgage from First City National Bank. The

mortgage was granted on normal credit terms. mortgage was granted on normal credit terms. Mark is the partner in charge of the First City Mark is the partner in charge of the First City

Audit.Audit.

Mark Jacobs is Mark Jacobs is compromising his compromising his independence with First independence with First City National Bank City National Bank because he has a liability because he has a liability with the mortgage with the mortgage company. He owes them company. He owes them 100,000 dollars and it 100,000 dollars and it would be unethical for would be unethical for him to conduct an audit him to conduct an audit on a company that he on a company that he does personal business does personal business with. with.

PowerPoint presented PowerPoint presented by:by:

Michael EnglishMichael English

Jennifer ChanJennifer Chan

Jesse LeeJesse Lee

Chelsea UnderhillChelsea Underhill

Nick RosasNick Rosas

GROUP 8