Major Project-(Please use textbook materials AND scripture to answer the following questions)
Case #1
As Jonathan Godwin packed his briefcase on Friday, March 15, he could never remember being so glad to see a weekend. As a senior tax manager with a major accounting firm, Goldberg and Smithfield, on the fast track for partnership, he was worried that the events of the week could prove to be detrimental to his career. Six months ago, the senior partners had rewarded Jonathan by asking him to be the tax manager on Aroma Inc., a very important client of the firm in terms of both prestige and fees. Jonathan had worked hard since then, ensuring that his client received impeccable service, and he had managed to build a good working relationship with Robert, the C.E.O. of Aroma Inc. In fact, Robert was so impressed with Jonathan that he recommended him to his brother, Dr.Scott, a general medical practitioner. As a favor to Robert, Jonathan agreed that Goldberg and Smithfield would prepare Dr. Scott’s tax return. This week a junior tax person had prepared Dr. Scott’s tax return. When it came across Jonathan’s desk for review today, he was surprised to find that, although Dr. Scott’s gross billings were $840,000, his net income for tax purposes from his medical practice was only $57,000. He discussed this with the tax junior, who said he had noted this also but was not concerned, as every tax return prepared by the firm is stamped with the disclaimer, “We have prepared the return from information provided to us by the client. We have not audited or otherwise attempted to verify its accuracy.” On closer review, Jonathan discovered that the following items, among others, had been deducted by Dr. Scott in arriving at net income: $25,000 for meals and entertainment. Jonathan felt that this was excessive and probably had not been incurred to earn income, given the nature of Dr. Scott’s practice; Dry-cleaning bills for shirts, suits, dresses, sweaters, and so on. Jonathan believed these to be family dry-cleaning bills that were being paid by the practice; Wages of $500 per week paid to Dr. Scott’s twelve-year-old son. Jonathan telephoned Dr. Scott and had his suspicions confirmed. When Jonathan asked Dr. Scott to review the expenses and remove all that was personal, Dr. Scott became very defensive. He told Jonathan that he had been deducting these items for years, and his previous accountant had not objected. In fact, it was his previous accountant who had suggested he pay his son a salary as an income-splitting measure. The telephone conversation ended abruptly when Dr. Scott was paged for an emergency but not before he threatened to inform his brother that the accounting firm he thought so highly of was behind the times on the latest tax planning techniques. Jonathan was annoyed with himself for having agreed to prepare Dr. Scott’s tax return in the first place. He was afraid of pushing Dr. Scott too far and losing Aroma, Inc. as a client as a result. He could not anticipate what Robert’s reaction to the situation would be. Jonathan was glad to have the weekend to think this over. Just as Jonathan was leaving the office, the tax senior on the Aroma, Inc. account informed him that the deadline had been missed for objecting to a reassessment, requiring Aroma Inc. to pay an additional $1,500,000 in taxes.The deadline was Wednesday, March 13. The senior said he was able to contact a friend of his at the Tax Department, and the friend had agreed that if the Notice of Objection were dated March 13, properly signed, and appeared on his desk Monday, March 18, he would process it. Jonathan left his office with some major decisions to make over the weekend.
Questions
1. Evaluate this case based on the six pillars of character.
2. Evaluate this case based on the various ethical philosophies.
3. Evaluate the case based on the G.V.V. framework’s four steps.
4. What should Jonathan Godwin do in this situation?
5. Are there any AICPA professional code of conduct and ethics or IRS CIR 230 violations in this case?
6. How are you prepared to handle a similar situation, and what would you do and why?
Case #2
The First Montana Bank was a medium-sized Midwestern financial institution.The management had a good reputation for backing successful deals, but the C.E.O. (and significant shareholder) had recently moved to Los Angeles to be close to the big-bank center of activity. He commuted into the First Montana head office for two or three days each week to oversee major deals. Lately, the bank’s profitability had decreased, and the management had begun to renegotiate many loans on which payments had fallen behind. By doing so, the bank was able to disclose them as current rather than nonperforming, as the unpaid interest was simply added to the principal to arrive at the new principal amount. Discussions were also underway on changing some accounting policies to make them less conservative. David Jones, the audit partner on the First Montana Bank account, was becoming concerned about the risk associated with giving an opinion on the fairness of the financial statements.During the early days of the audit, it became evident that the provision for doubtful loans was far too low, and he made an appointment to discuss the problem with the C.E.O. and his vice president of finance. At the interview, David was told that the executives knew the provision was too low, but they did not want to increase it because that would decrease their reported profits. Instead, they had approached a company that provided insurance to protect leased equipment, such as earthmovers, against damage during the lease and arranged for insurance against nonpayment on the maturity of their loans. As a result, they said, any defaults on their loans would be made up from the insurance company, so they did not see any point in increasing the provision for loan losses or disclosing the insurance arrangement.
When he heard of this, David expressed concern to the First Montana management, but they were adamant. Because First Montana was such a large account, he sought the counsel of Tommy Moreland, the senior partner in his firm who was in charge of assessing such accounting treatments and the related risk to the auditing firm. Tommy flew out to confer with David, and they decided that the best course of action was to visit the client and indicate their intent to resign, which they did. After dinner, Tommy was waiting at the airport for his plane home. By coincidence, he met Peter Long, who held responsibilities similar to his own at one of the competing firms. Peter was returning home as well and was in good spirits. On the flight, Peter let it slip that he had just picked up an old client of Tommy’s firm, First Montana Bank.
Questions
1. Evaluate this case based on the six pillars of character for each party.
2. Evaluate this case based on the various ethical philosophies for each party.
3. Evaluate the case based on the G.V.V. framework’s four steps.
4. What should Tommy Moreland do in this situation?
5. How are you prepared to handle a similar situation, and what would you do and why?
6. Are there any AICPA professional code of conduct and ethics violations in this case?
Case #3
Cody Chadwick, C.P.A., began working as a staff accountant at Dreamworld, one of the top accounting firms. While preparing for the C.P.A. exam, he studied the AICPA code of ethics. Cody believed that independence was an integral part of being a good auditor and required for the audit profession. After working here for 18 months, Cody believes that the firm is on the right track and deserved its reputation for excellence in the field. Cody was raised with a Protestant work ethic and believes in responsibility and hard work. He believes in loyalty to an employer and the hierarchy of authority. His next assignment was challenging. Stan Fields, the senior audit partner on the audit, assigned Cody to audit the subsidiary. Stan told Cody that his job was to solve all the problems that arise and present a clean opinion for the subsidiary. Cody was given a few staff people to help him, so it was his first supervisory role as well. The two staff people did not like working for Stan as they felt Stan was hard to get along with, and it was either his way or the highway. A few problems arose during the audit, and Stan did not budge in his opinions. Now with the audit due in 5 days, Cody has some serious issues.
Cody believes that one piece of property is only worth $250,000, but the client has it booked at $2 million on its books. After speaking with the client, they refused to write it down, believing it will be rented shortly. The write-down of this property would be considered material for the subsidiary but not for the client. So Cody submitted his report on the subsidiary with a subjecttoopinion and with the exception of the write-off of $1,750,000. Stan reviewed Cody’s report and told him to remove the subject-to opinion, present a clean opinion, remove the discourse, and all references to the $250,000 value on the property. Cody did not agree, and things became heated. Stan informed Cody that he was a senior auditor and doing this job for eight years. Stan also said he was responsible for a clean opinion for this client and that the subsidiary was not material and only will be looked at inside the company. Stan reminded Cody that he was to be evaluated for the first time based on being a supervisor. Cody found out later that Stan removed all references to the $250,000 value and issued a clean opinion on the audit. Also, Stan issued a negative evaluation of Cody’s performance on the audit.
Questions
1. Evaluate this case based on the six pillars of character for each party.
2. Evaluate this case based on the various ethical philosophies for each party.
3. Evaluate the case based on the integrated ethical decision-making framework’s four steps.
4. What should Cody Chadwick do in this situation?
5. How are you prepared to handle a similar situation, and what would you do and why?
6. Are there any AICPA professional code of conduct and ethics violations in this case?
Case #4
Eagle Inc. manufactures computers for personal use. The company has started in 2017 and has reported a profit for 2017, 2018, and 2019. This year began with high expectations, but due to the pandemic, things are not looking that good for Eagle, Inc. Ironically, even though there was a pandemic in 2020, sales in the computer industry skyrocketed. But due primarily to increased competition and price slashing in the computer industry, 2020’s income statement reported a loss of $20 million. Just before the of the 2021 fiscal year, a memo from the company’s chief financial officer to Charles Robinson, the company controller, included the following comments:
“If we do not do something about the large amount of unsold computers already manufactured, our auditors will require us to write them off. The resulting loss for 2021 will cause a violation of our debt covenants and force the company into bankruptcy. I suggest that you ship half of our inventory to H.C.C. Computers Sales, Inc. in Texas. I know the company’s president, and he will accept the merchandise and acknowledge the shipment as a purchase. We can record the sale in 2021, which will boost profits to an acceptable level. The H.C.C. Sales will simply return the merchandise in 2022 after the financial statements have been issued.”
Questions
1. Evaluate this case based on the six pillars of character for each party.
2. Evaluate this case based on the various ethical philosophies for each party.
3. Evaluate the case based on the integrated ethical decision-making framework’s four steps.
4. What should Charles Robinson do in this situation?
5. How are you prepared to handle a similar situation, and what would you do and why?
6. Are there any AICPA professional code of conduct and ethics violations in this case?
Case #5
You will create your own ethics case. Follow the example of the cses you have examined in this course-1. Present a fact pattern; 2. List questions for someone to answer; 3-Present the answers to the questions and the reasons for the answers!
Choice of topics for creating your own case.
Ethical leadership
Auditing
Personal taxes
Corporate taxes
Fraud
Earnings management
Corporate Governance
Revenue Recognition
Requirements: Long enough to complete the project