Accounting Ethics and Standards Research Paper

Abstract

Brent Dorsey, Megan Mills, and Scott Olsen are staff auditors working under a senior accountant named John Peters. Mr. Peters was desperate to get the promotion that he sorely needed. As a consequence, Mr. Peters forced the three staff auditors to consider unethical strategies to meet unrealistic time budgets. A closer examination of the alternative strategies adopted by Brent, Megan and Scott revealed short-term gains, and long-term consequences to the reputation of the auditors. In addition, the accounting firm will suffer from the impact of an accounting fiasco the moment Northwest Steel Producers will discover inaccuracies in the audit. It is therefore more prudent to adhere to principles of accounting standards that accountants must follow.

Research Findings

Relevant professional standards, and ethics guidance for the Brent Dorsey case are listed as follows:

1. AU Section 230: Due Professional Care in the Performance of Work;
2. AU Section 311: Planning and Supervision;
3. AU Section 326: Audit Evidence;
4. ET Section 52: Article 1: Responsibilities;
5. ET Section 53: The Public Interest;
6. ET Section 54: Article 3: Integrity;
7. ET Section 55: Article 4: Objectivity and Independence;
8. ET Section 56: Article 5: Due Care;
9. ET Section 57: Article 6: Scope and Nature of Services;
10. ET Section 102: Integrity and Objectivity (American Institute of CPAs, 2014).¹

Auditors must consider the principles found in AU Section 311, and these must serve as a guide in determining the skills, and level of supervision needed to conduct the audit of Northwest Steel Producers. This component of the professional standards provides a roadmap on how to plan the audit (Flood, 2012). In the case of Mr. Dorsey, the failure of John Peters to plan ahead resulted in his inability to realize the time needed to audit every component of the audit project.

AU Section 230 and ET Section 56 is another example of accounting standards that will help remind auditors to provide due diligence services to Northwest Steel Producers (Skalak, Golden, Clayton, & Pill, 2011). They must never be satisfied with less than excellent work (Dauber, 2009). Accounting standards found in ET Section 57 will help accountants prepare for the task at hand, because they will know the scope and nature of service that they have to provide their clients. As a result, the audit is conducted with reasonable care and diligence. This standard is related to AU Section 326, which is a reminder to auditors that there must be sufficient evidential matter that must be obtained through careful inspection, observation, and inquiries. The end goal is to provide a reasonable opinion regarding the financial statements of Northwest Steel Producers (Public Company Accounting Oversight Board, 2014).²

ET Section 53 provides the guidelines on how the accountant must treat clients, credit grantors, governments, employers, investors, and the financial community. The accountant must consider the impact of his actions on the community that he serves (Bruner & Haley, 2007). ET Section 54 is related to this framework, because it compels the accountant to never comprise. It also reminds the accountant of the need to have the courage to live with the consequences of the actions made (Duska & Ragatz, 2011). ET Section 52 complements this standard; this is a guide that reminds auditors to exercise moral judgment in all their activities (American Institute of CPAs, 2014).

Ethics guidance is also provided through ET Section 55 and ET Section 102. In this framework, accountants must adhere to the principles of objectivity and independence (Tidrick & Prentice, 2010). Therefore, Brent Dorsey must realize the importance of being an impartial and intellectually honest accountant (Glusman & Ciociola, 2008).

Relevant Facts

Brent Dorsey is new to the accounting firm, because it was only his second audit job. He was working under a senior accountant named John Peters. It is important to point out that Mr. Peters was under tremendous pressure to perform well. As a consequence, Mr. Peters pressured his staff auditors to work over the weekend. He also wanted them to meet unrealistic time budgets.

Mr. Dorsey was also under tremendous pressure to perform well. In addition, Mr. Dorsey was experiencing marital woes. His wife was not happy that he is always coming home late in the evening. Thus, Scott Olsen and Megan Mill’s suggestion to cut corners was an offer that Mr. Dorsey found hard to resist.

Ethical Issues

Scott Olsen suggested the concept of “eating time.” It seems like a harmless proposition at first. However, in the long run it will create problems for the accounting firm, because of the inaccurate information provided by the staff auditors with regards to their performance.³

Megan Mills’ suggestion was to skip a few auditing steps. This suggestion creates different problems for the staff auditors and the accounting firm. If Mr. Dorsey will follow this suggestion, his team will create a report that is full of inaccurate information.

Parties Affected and How They Are Affected

All the staff auditors will be affected by the decision to ignore accounting standards. Brent, Megan, and John’s decision on how to speed up the work process will affect John Peters. If Brent, Megan, and Scott will choose to ignore Mr. Peter’s directive, their job performance evaluation will be affected. However, if the three staff auditors decide to violate accounting standards, the accounting firm will be affected by unethical behavior. At the same time, their client will also suffer from bad decisions that were brought about by the inaccurate information provided by the accounting firm.⁴

Alternatives

The staff auditors can choose from at least five alternatives. First, the trio can follow the suggestion made by Megan. They will skip certain audit steps in order to speed up the work process. By skipping certain audit steps, the auditors will provide inaccurate information to the clients.

Second, they can follow the suggestion made by Scott. They will make dishonest claims about the time they utilized to finish the audit. It may appear as if they were able to meet unrealistic time budgets. In the future, staff auditors will have a hard time satisfying the unrealistic expectations of the managers.

The third alternative encourages the staff auditors to work fast, however, they will do it the right way. They will record the time that was spent in completing the audit job. Fourth, the trio can decide to talk to John, and explain why it is impossible to finish the audit on time. In their discussions, they can come up with certain strategies that they can try in order to reduce the time needed to complete the audit. Finally, the trio can decide to bypass the chain-of-command, and discuss the dilemma that they are facing⁵.

Consequences of Alternatives

With regards to Alternative #1, skipping audit steps will enable the team to complete the work in less time. However, this is problematic solution because it will lead to inaccurate analysis of accounting data. It is highly probable that the accounting firm will lose the account of Northwest Steel Producers.

With regards to Alternative #2 the team will not be able to finish ahead of schedule. They will not be able to spend time with their respective families. However, it will appear as if they were able to meet unrealistic time budgets. This is not an ideal solution because the firm will have an inaccurate understanding of the team’s ability to finish a particular audit job.

With regards to Alternative #3, the team will never meet the unrealistic time budgets suggested by the accounting firm. However, the team will be able to do the right thing. On the other hand, Brent, John, and Megan’s performance evaluation will be affected. This may create a bad reputation for the staff auditors.

With regards to Alternative #4 the team will be able to clarify the expectations of Mr. Peters. At the same time they can develop strategies that can help them meet unrealistic time budgets. However, this can backfire on the team, because Mr. Peters can view them as competitors. They may threaten his chance to get a promotion.

With regards to Alternative #5 the trio can receive valuable inputs from senior accountants. As a result, they may figure out a solution to challenges that they are facing. Senior partners in the firm may also discover the unrealistic goals set by Mr. Peters.⁶ Thus, there is a chance for managers to come in and rectify the problems related to unrealistic goals.⁷ However, this strategy can backfire on the team. Senior partners may perceive them as lacking the necessary skills needed to solve work-related problems.

Appropriate Action

The most appropriate action is to talk to Mr. Peters and clarify the instructions made. It is also best to explain to Mr. Peters why it is impossible to meet certain time budgets. In the process of discussion, Mr. Peters can help the team develop the appropriate strategies to speed up the work process. However, if the discussion with Mr. Peters yields negative results, staff auditors must review the necessary steps needed to complete the task at hand. They must make the necessary adjustments to improve the workflow. They must do everything the right way. They must provide accurate reports, especially on the time that they used to complete the audit job. At the end, the senior partners of the accounting firm will realize that it is impossible to meet certain unrealistic time budgets. They will make the necessary steps to modify work expectations, because they will realize that it is more important to provide clients accurate information rather than pretend that there is no problem in the said accounting firm.⁸

References

Bruner, P. & Haley, T. (2007). Managing and litigating the complex surety case. New York: ABA Publishing.

Dauber, N. (2009). Wiley the complete guide to auditing standards for accountants. New Jersey: John Wiley & Sons.

Duska, R., & Ragatz, J. (2011). Accounting ethics. New Jersey: John Wiley & Sons.

Flood, J. (2013). Wiley’s practitioner’s guide to GAAS 2013. New Jersey: John Wiley & Sons.

Glusman, D., & Ciociola, G. (2008). Roles and responsibilities in estates and trust. IL: CCH Publishing.

Public Company Accounting Oversight Board. (2014). Au section 326: Evidential matter. Web.

Skalak, S., Golden, T., Clayton, M. & Pill, J. (2011). A guide to forensic accounting Investigation. New Jersey: John Wiley & Sons.

Tidrick, D. & Prentice, R. (2010). Auditing and attestation. New York: Efficient Learning Systems.

Footnotes

1. These standards provide guidelines on how to provide quality service for clients. These standards remind accountants that they are no ordinary workers doing ordinary clerical jobs.
2. Megan Mills suggested the idea of cutting corners or skipping certain audit steps. This idea will negatively affect the quality of the information that the firm can send as feedback to the clients.
3. At first glance, Scott’s idea seemed harmless. However, a closer inspection of the statement will reveal that Scott creates an indirect impact on the other auditors of the firm. His inaccurate report will create a false idea on the efficiency of the auditors.
4. Mr. Peters failed to understand the essence of the ethical standards outlined earlier. Mr. Peters must never place his subordinates in a position where they are forced to compromise their standards on how to provide excellent service for the firm and for the clients.
5. Professionals must always think twice before taking the easy way out of any problem. In this case, bypassing the chain of authority, and going directly to senior partners in the accounting firm seems to be a brilliant idea. However, this action can cause problems with working relationships between the staff auditors and Mr. Peters.
6. Mr. Peters will have to review the accounting standards in order to remember that he is accountable to the community he serves.
7. It is important for senior partners to know the real story with regards to the auditors’ ability to complete specific tasks. In the desire to earn promotion some of the auditors are willing to impress their leaders by submitting inaccurate reports regarding their efficiency in completing audit jobs.
8. It can be argued that Mr. Dorsey will be rewarded with a work environment that is more favorable to him and his wife. However, it may take some time before changes can be evident. In the meantime, he is in the mercy of Mr. Peters and senior partners of the accounting firm. Thus, it is important for accountants to have the moral strength to face the consequences of their actions.