Solving Ethical Dilemmas
Baker Greenleaf, one of the Big Eight accounting firms, is faced with a dilemma upon discovering that an account that they had previously shared with a fellow Big Eight accounting firm is in need of a special audit (Brooks, 2007). In an attempt to exclusively secure the account, Baker Greenleaf labels the account a high priority and assigns its top employees to take care of it.
The account in need of assistance was a wholly owned real estate subsidiary (SUB) that the firm had experienced problems with in the past (Brooks, 2007). Dan was placed in charge of the account by Oliver, the project senior. He was tasked with performing the SUB’s audit by reaching a clean opinion. Upon completing the audit, Dan was able to correct several issues, with the exception of one.
The SUB’s balance sheet shows that one of the largest properties has been overstated. The property is listed on the balance sheet at a value higher than Dan’s estimate. The overstatement is a problem that Dan felt needed to be corrected.
Dan recommended a write-down to fix the overstatement and believed that the problem needed to be brought to the attention of the SUB managers. The write-down was refused by the SUB managers. The American Institute of Certified Public Accountants (AICPA) has regulations concerning materiality which stipulate that disagreements between the client and accountant affecting the income statement in an amount of more than three percent must be noted in the CPA’s opinion (Brooks, 2007). The overstatement results in a write-down of $1,900,000 which equates to a seven percent difference in the client’s net income.
A second dilemma presents itself when Dan has no choice after forwarding his report to Oliver. Oliver disagrees with Dan’s report and asks him to amend the report so that Dan’s findings are not mentioned. Dan refused to amend his report which resulted in Oliver switching the reports and writing Dan up. Taking care of the account resulted in two dilemmas for Dan; creating a write-down to fix the overstatement and having to decide whether or not to report Oliver for falsifying Dan’s information.
In addition to Dan and Oliver, there are other stakeholders that stand to be affected by the outcome of the account situation. Dan bases his decision-making on his integrity and high ethical standards. His decision determines whether or not he will receive a promotion and also affects his reputation.
Oliver, a six year veteran of Baker Greenleaf, risks losing a promotion. His actions could also result in Baker Greenleaf not securing exclusive control over the account. Losing a high priority account would result in a loss of profits.
As the firm handling the account, Baker Greenleaf is also risking their reputation if the wrong decision is made. The wrong decision could result in losing clients, revenue, investors and they could face legal action such as lawsuits.