60.
Describe the Giving Voice to Values framework. What are the reasons and rationalizations
frequently given in financial statement fraud situations?
61.
As an executive in a mid-sized manufacturing firm, Cal finds himself thrown together with
Harry, who works for a division of the firm that Cal supervises. He and Harry are in the
same community; their children are in the same schools; they often show up at the same
social functions; and they play golf together fairly frequently.
One day, to Cal’s deep dismay, he hears that Harry has been implicated in some financial
irregularities at work. The issues while serious leave some room for doubt. There is reason
to think Harry got ensnared by regulations, though he may have afterwards tried to cover
up that entanglement by being less than forthright. Yet after what Cal observes to be a
careful audit and investigation, Harry is let go from his job.
Harry comes to Cal and asks for a letter of recommendation.
What should Cal do? What are the consequences of the options?
62.
As a professional working for a large electronics firm, Stan found himself riding a roller
coaster of concern about lay-offs. Every few years, top management slashed jobs as work
slacked off – only to hire again when things were looking up. So when Stan and his team
members noticed that the executives were again meeting behind closed doors, they
suspected the worst.
Stan’s boss revealed to Stan that Stan’s team member Jim was slated to lose his job.
However, it was made plain that Stan was to keep that information confidential.
Not long after that conversation, Jim approached Stan and asked whether he could
confirm the rumor that he would be laid off.
Stan has decided to tell Jim but first wants to convince management of the rightness of
his action. What might he say to who and why? What are the reasons and rationalizations
he may have to counter in making his argument?
63.
Taken from Case 1-2 Giles and Regas.
Ed Giles and Susan Regas have never been happier than during the past four months
since they have been seeing each other. Giles is a 35-year-old CPA and a partner in the
medium-sized accounting firm of Saduga & Mihca. Regas is a 25-year-old senior
accountant in the same firm. Although it is acceptable for peers to date, the firm does not
permit two members of different ranks within the firm to do so. A partner should not date
a senior in the firm any more than a senior should date a junior staff accountant. If such
dating eventually leads to marriage, then one of the two must resign because of the
conflicts of interest. Both Giles and Regas know the firm’s policy on dating, and they have
tried to be discreet about their relationship because they don’t want to raise any
suspicions.
While most of the staff seem to know about Giles and Regas, it is not common knowledge
among the partners that the two of them are dating. Perhaps that is why Regas was
assigned to work on the audit of CAA Industries for a second year, even though Giles is
the supervising partner on the engagement.
As the audit progresses, it becomes clear to the junior staff members that Giles and
Regas are spending personal time together during the workday. On one occasion, they
were observed leaving for lunch together. Regas did not return to the client’s office until
three hours later. On another occasion, Regas seemed distracted from her work, and later
that day, she received a dozen roses from Giles. A friend of Regas’s who knew about the
relationship, Ruth Revilo, became concerned when she happened to see the flowers and a
card that accompanied them. The card was signed, “Love, Poochie.” Regas had once told
Revilo that it was the nickname that Regas gave to Giles.
Revilo pulls Regas aside at the end of the day and says, “We have to talk.”
“What is it?” Regas asks.
“I know the flowers are from Giles,” Revilo says. “Are you crazy?”
“It’s none of your business,” Regas responds.
Revilo goes on to explain that others on the audit engagement team are aware of the
relationship between the two. Revilo cautions Regas about jeopardizing her future with the
firm by getting involved in a serious dating relationship with someone of a higher rank.
Regas does not respond to this comment.
Regas promises to talk to Giles and thanks Revilo for her concern. That same day, Regas
telephones Giles and tells him she wants to put aside her personal relationship with him
until the CAA audit is complete in two weeks. She suggests that, at the end of the two-
week period, they get together and thoroughly examine the possible implications of their
continued relationship. Giles reluctantly agrees.
However, Giles appears at the CAA audit a few days later. He pulls Regas aside and
states, “I do want to put our relationship on hold until after this audit.”
“We cannot be talking about this now! The audit team or the client could hear.”
“Then let’s have dinner tonight to discuss it. I won’t leave until you say yes.”
“Okay.”
As Regas is returning to the audit room, Revilo says, “The team is uncomfortable with you
and Giles having personal conversations in front of them. You promised this would stop.”
“I appreciate your concerns again. I am working on it! Please give me some time and
space.”
“You don’t have much time. Some of the team are talking of going to HR or the managing
partner about the situation.”
Required:
Analyze the case using GVV.
• What are the main arguments Revilo (and the audit team) are trying to counter? What
the reasons and rationalizations Revilo needs to address?
• What is at stake for the key parties?
• What levers can Revilo use to influence Regas and Giles?
• What is the most powerful and persuasive response to the reasons and rationalizations
Revilo needs to address? To whom and when?
64.
Taken from Case 1-7 Eating Time.
Kevin Lowe is depressed. He has been with the CPA firm Stooges LLP for only three
months. Yet the partners in charge of the firm—Bo Chambers and his brother, Moe—have
asked for a “sit-down.” Here’s how it goes:
“Kevin, we asked to see you because your time reports indicate that it takes you 50
percent longer to complete audit work than your predecessor,” Moe said.
“Well, I am new and still learning on the job,” replied Lowe.
“That’s true,” Bo responded, “but you have to appreciate that we have fixed budgets for
these audits. Every hour over the budgeted time costs us money. While we can handle it in
the short run, we will have to bill the clients whose audit you work on a larger fee in the
future. We don’t want to lose clients as a result.”
“Are you asking me to cut down on the work I do?” Lowe asked.
“We would never compromise the quality of our audit work,” Moe said. “We’re trying to
figure out why it takes you so much longer than other staff members.”
At this point, Lowe started to perspire. He wiped his forehead, took a glass of water, and
asked, “Would it be better if I took some of the work home at night and on weekends,
completed it, but didn’t charge the firm or the client for my time?”
Bo and Moe were surprised by Kevin’s openness. On one hand, they valued that trait in
their employees. On the other hand, they couldn’t answer with a yes. Moe looked at Bo,
and then turned to Kevin and said, “It’s up to you to decide how to increase your
productivity on audits. As you know, this is an important element of performance
evaluation.”
Kevin cringed. Was the handwriting on the wall in terms of his future with the firm?
“I understand what you’re saying,” Kevin said. “I will do better in the future—I promise.”
“Good,” responded Bo and Moe. “Let’s meet 30 days from now and we’ll discuss your
progress on the matters we’ve discussed today and your future with the firm.”
In an effort to deal with the problem, Kevin contacts Joyce, a friend and fellow employee,
and asks if she has faced similar problems. Joyce answers “yes” and goes on to explain
she handles it by “ghost-ticking.” Kevin asks her to explain.
“Ghost-ticking is when we document audit procedures that have not been completed.”
Kevin, dumbfounded, wonders, what kind of a firm am I working for?
After much consideration Kevin asks for a meeting with Bo and Moe within week. Kevin
does not want to take work home and off the clock. He wants the meeting to convince Bo
and Moe that having auditors work off the clock and at home is not in the best interest of
the firm and its mission to do independent audits with integrity, objectivity, and due
professional care.
Required:
Analyze the case using GVV.
• What are the main arguments Kevin is trying to counter? What are the reasons and
rationalizations Kevin needs to address?
• What is at stake for the key parties?
• What levers can Kevin can use to influence Bo and Moe?
• What is the most powerful and persuasive response to the reasons and rationalizations
Kevin needs to address? To whom and when?
65.
Taken from Case 1-9 Cleveland Custom Cabinets.
Cleveland Custom Cabinets is a specialty cabinet manufacturer for high–end homes in the
Cleveland Heights and Shaker Heights areas. The company manufactures cabinets built to
the specifications of homeowners and employs 125 custom cabinetmakers and installers.
There are 30 administrative and sales staff members working for the company.
James Leroy owns Cleveland Custom Cabinets. His accounting manager is Marcus Sims,
who reports to the director of finance, Alison Mayhew. Sims manages 15 accountants. The
staff is responsible for keeping track of manufacturing costs by job and preparing internal
and external financial reports. The internal reports are used by management for decision
making. The external reports are used to support bank loan applications.
On April 10, 2016, Leroy came into Sims’s office to pick up the quarterly report. He looked
at it aghast. Leroy had planned to take the statements to the bank the next day and meet
with the vice president to discuss a $1 million working capital loan. He knew the bank
would be reluctant to grant the loan based on a net income of $90,000 on revenue of
$6,400,000. Without the money, Cleveland could have problems financing everyday
operations.
Leroy called Mayhew to come to Sims’s office. Leroy then asked for an explanation of
how net income could have gone from 14.2 percent of sales for the year ended December
31, 2015, to 1.4 percent for March 31, 2016. Sims pointed out that the estimated overhead
cost had doubled for 2016 compared to the actual cost for 2015. He explained to Leroy
that rent had doubled and the cost of utilities skyrocketed. In addition, the custom–making
machinery was wearing out more rapidly, so the company’s repair and maintenance costs
also doubled from 2015.
Leroy wouldn’t accept Sims’s explanation. Instead, he told Sims that the quarterly income
had to be at least the same percentage of sales as at December 31, 2015. Mayhew agreed
with Leroy and said there had to be a mistake and it would be corrected. Sims looked
confused and reminded Leroy and Mayhew that the external auditors would wrap up their
audit on April 30. Leroy told Sims not to worry about the auditors. He would take care of
them. Furthermore, “as the sole owner of the company, there is no reason not to ‘tweak’
the numbers on a one-time basis. I own the board of directors, so no worries there.” He
went on to say, “Do it this one time and I won’t ask you to do it again.” He then reminded
Sims of his obligation to remain loyal to the company and its interests. Sims started to
soften and asked Leroy just how he expected the tweaking to happen. Leroy flinched, held
up his hands, and said, “I’ll leave the creative accounting to you and Mayhew.”
Required:
Analyze the case using GVV.
• What are the main arguments Sims is trying to counter? What are the reasons and
rationalizations Sims needs to address?
• What is at stake for the key parties?
• What levers can Sims can use to influence Leroy and Mayhew?
• What is the most powerful and persuasive response to the reasons and rationalizations
Sims needs to address? To whom and when?
