Discovery – Facts of the Case
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Discovery – Facts of the Case
Todd Davis is a staff accountant who works for a small but highly regarded CPA firm. Todd aspires to be a CPA; he has passed the CPA examination, and has remaining the experience requirement to be designated as a certified public accountant (CPA). Todd is married, his wife, Carrie, is employed as a sales clerk/assistant/apprentice for a creative design accents shop owned by Mrs. Cook. During a conversation with his wife Carrie, Todd learns that the owner, Mrs. Cook of the business Carrie works for asked her not to record cash sales made for the day. Perplexed by Mrs. Cooks behavior and request, Carrie confided in Todd and sought his professional advice. This situation poses a dilemma for Todd because he has obligations both professionally and personally. The issue is whether Todd is ethically responsible to take any action based on his professional code of ethics or is he only obligated to be concerned for his wifes future and happiness.
Operational Issues
Although a small business and challenged with a limited structure, there is not an effective control environment at the Creative Design Accents Shop. The behavioral issues are the actions of Mrs. Cook and as owner her influence over and instruction to her employee, Carrie not to record cash sales. Further, Carries position fills a triple role of sales clerk, assistant, apprentice. There is no mention of other employees other than the owner, Mrs. Cook, so we can infer that this is a small business. Mrs. Cook is directly involved in the day-to-day operations of the business and in the production of work. Small businesses have the disadvantage of a limited control environment that is only mitigated by the influence of an informed, honest, and diligent business owner. This is particularly important where cash handling is involved. Payments by check and credit card have a built in control factor as it must be verified by a third party other the customer and business. Currency handling has greater risks of misappropriation and theft.
Given the limited operational structure and as the business owner, Mrs. Cook has a great degree of control and influence over Carries position and the performance of her work. Her directive to Carrie not to ring up the cash sales of the afternoon could have been motivated from two positions: (1) to understate a portion of the revenues of the business; or (2) a test of controls to determine whether her employee, Carrie, was an honest and trustworthy person whom she can trust to run her business either in her absence or as a co-owner. Other behavioral issues include Todds conflict between his loyalty to his wife and the profession. There are implications to Todds professional actions and whether he has an ethical responsibility to act upon the delicate information shared by his wife.