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 date. 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 conflict of interests. Giles and
Regas 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 that day 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, Ruth Revilo, inadvertently discovered this fact when she happened to see the card that
accompanied the flowers. It was signed, “Love, Poochie.” Regas had once told Revilo that it was the
nickname 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.
Instead, she admits to being distracted lately because of an argument she had with Giles.It all started when
Regas had suggested to Giles that it might be best if they did not go out during the workweek because she
was having a hard time getting to work on time. Giles was upset at the suggestion and called her ungrateful.
He said, “I’ve put everything on the line for you. There’s not turning back for me.” She points out that the
flowers are his way of saying he is sorry for some of the comments he had made about her.
Regas promises to talk to Giles and thanks Revilo for her concern. That same day, Regas telephones
Giles and tells him she wants to temporarily 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, but
he conditions his acceptance on having a “farewell” dinner at their favorite restaurant. Regas agrees to the
dinner.
Giles and Regas have dinner that Saturday night. As luck would have it, the controller of CAA
Industries, Mark Sax, is at the restaurant with his wife. Sax is startled when he sees Giles and Regas
together. He wonders about the possible seriousness of their relationship, while reflecting on the recent
progress billings of the accounting firm. Sax believes the number of hours billed is out of line with work of
a similar nature and the fee estimate. He had planned to discuss the matter with Herb Morris, the managing
partner of the firm. He decides to call Morris on Monday morning.
“Herb, you son of a gun, it’s Mark Sax.”
“Mark. How goes the audit?”
“That’s why I’m calling,” Sax responds. “Can we meet to discuss a few items?”
“Sure,” Morris replies. “Just name the time and place.”
“How about first thing tomorrow morning?” asks Sax.
“I’ll be in your office at 8:00 a.m.,” says Morris.
“Better make it at 7:00 a.m., Herb, before your auditors arrive.”
Sax and Morris meet to discuss Sax’s concerns about seeing Giles and Regas at the restaurant and the
possibility that their relationship is negatively affecting audit efficiency. Morris asks whether any other
incidents have occurred to make him suspicious about the billings. Sax says that he is only aware of this
one instance, although he sensed some apprehension on the part of Regas last week when they discussed
why it was taking so long to get the audit recommendations for adjusting entries. Morris listens attentively
until Sax finishes and then asks him to be patient while he sets up a meeting to discuss the situation with
Giles. Morris promises to get back to Sax by the end of the week.
NOTES
The objective of this case is to make students aware of the potential dangers of getting involved in a dating
relationship with someone of higher rank in the firm. A strong possibility exists that the staff member of
lower rank will have his or her progress in the firm at least temporarily slowed by becoming involved with
someone of higher rank. Additionally, the more senior staff member now has a conflict of interest, such as
exists for Ed Giles in the case. The ethical issues pertain to fairness in the treatment of employees and
whether the firm can meet its obligations to a client when staff members on the audit are involved in a
dating relationship.
Ethical and Professional Issues
Giles and Regas have put themselves in a position where their work product may suffer as a result of their
relationship. It appears that this already has occurred since Mark Sax, the controller of CAA Industries, has
expressed his concerns to Herb Morris, the managing partner of the local office of the firm that the delay in
audit completion and high level of billings may be due to distractions resulting from the relationship. The
reliability of Giles and Regas seems to be questioned by Sax.
An important ethical concern is the conflict of interest that Giles may have if, for example, he determines
that Regas is not adequately carrying out her responsibilities. Giles could have a difficult time dealing with
this situation in the same way that he would handle a situation that involved a staff member with whom his
relationship is solely professional. Moreover, the audit manager is in a sensitive position because he or she
may know of the relationship and hesitate to treat Regas the same way other staff members are treated
because Giles is the manager’s superior. A conflict of interest tends to cloud one’s judgment as to what is the
right thing to do. It makes it more difficult for a supervisor to be impartial. Even the appearance of a
conflict can harm the image of the professional.
It has been said that the best way to handle a conflict of interest is not to become involved in one in the first
place. This is why all three codes of conduct of the professional accounting associations preclude members
from engaging in activities that can create such a conflict. The Principle of Objectivity in the AICPA Code
requires that:
A member should maintain objectivity and be free of conflicts of interest in discharging
professional responsibilities.
The ethical standard of Integrity in IMA Code states that:
Management accountants have a responsibility to avoid actual or apparent conflicts of interest and
advise all appropriate parties of any potential conflict.
Members of the IIA are expected to “refrain from entering into any activity which may be in conflict with
the interest of their organization or which would prejudice their ability to carry out objectively their duties
and responsibilities.”
The firm’s policy on dating seems to be appropriate. It is designed to avoid compromising client relations
and audit efficiency. The profession sets high standards of conduct to guide its members in relationships
with clients, suppliers, customers and others who can influence the decision-making process. These same
high standards should be aspired to by all CP As in dealing with members of their organization and other
professionals.
Giles and Regas are not acting in a professional manner. They seem to know this because in the last
sentence of the first paragraph it states that they “have tried to be discreet about their relationship because
they don’t want to create any suspicions.” If they truly felt comfortable with their relationship, then they
would have nothing to hide. However, their actions violate firm policy and this is undoubtedly why they are
being discreet.
It appears from the facts of the case that Giles is more responsible than Regas for the tension on the CAA
Industries audit. To begin with, he never should have allowed Regas to serve as the senior on the audit
since he is the supervising partner on the engagement. Perhaps he allowed her to work on the audit because
to do otherwise might have aroused suspicions about a possible relationship between the two of them. Giles
also seems to have created stress for Regas by his inappropriate comment: “There’s no turning back for
me.” This type of comment can only add to the pressure Regas feels, given that her work is scrutinized by
Giles. The result may be to negatively affect audit efficiency.
Although Regas’ involvement in the relationship should not be dismissed, she does seem to recognize the
dangers and ultimately makes a decision to put aside their relationship in the interests of completing the
audit. Rather than simply honoring her request not to date for two weeks, Giles conditions his agreement
on a “farewell” dinner. This is not a very caring and considerate thing to do and it demonstrates selfishness
on the part of Giles. In fact, the dinner is the event that brings matters out in the open because Mark Sax
now suspects that their relationship may be affecting completion of the audit. The direct involvement of the
client puts the firm in a very difficult position, one that Herb Morris will have to deal with at the meeting
with Giles.
Ethical Analysis
The decision to be made by Herb Morris can be analyzed using ethical reasoning. The stakeholders affected
by Morris’ decision include: Giles and Regas; the accounting firm; other staff members of the firm and its
partners; CAA Industries and other clients that might be affected by the decision; and Mark Sax.
Utilitarian Theory:
From a utilitarian perspective, Morris should weigh the consequences of alternative
courses of action. The alternatives and an evaluation of the potential benefits and harms of each course of
action follow.
Permit Giles and Regas to complete the audit, but ask one of them to resign thereafter. It is not practical to
remove Giles or Regas from an audit that should be completed in about two weeks. The decision already
has been made to put aside their relationship until the CAA audit is completed. This seems to be the best
option from both the accounting firm’s position and that of the client. All stakeholders seem to benefit from
allowing Giles and Regas to fulfill their audit responsibilities.
The second part of this option is more troubling in that it is difficult to determine who should be asked to
resign. It is an issue of
fairness
and
due care.
On the surface it may appear that Regas should be asked to
resign because of Giles’ position in the firm. However, this may not be in the best interests of the firm and
other clients who may be very satisfied with the work of Regas. These stakeholders could be harmed by a
decision that leads to the resignation of a valued member of the firm, and one with excellent future
prospects. While the facts of the case are silent on this issue, it is an important one for Morris to consider.
Clearly, he should meet with the other partners before making a decision. Any decision to remove Giles
from the partnership is likely to be an expensive one for the firm since it will have to buyout Giles’
ownership interest.
Permit Giles and Regas to complete the audit and allow both of them to continue with the firm. If both
Giles and Regas are allowed to continue with the firm, then other staff members may start to wonder
whether there are any consequences of violating firm policy. This is likely to be a particularly sensitive
issue since some staff members on the CAA audit already suspect that the relationship is affecting the
performance of Regas. Additionally, Mark Sax is aware of the situation and has expressed CAA’s concern
about the effect the relationship may be having on audit billings.
On the other hand, Morris may believe that a warning is sufficient to protect the firm’s interests and those
of the client, especially since the firm’s policy only requires one of the two to resign if marriage is
eventually planned. It may be that the best option is to give them another chance but take measures to
prevent them from serving together on any audits in the future.
Rights Theory: From a rights approach, the most important issue is that of universality. That is, whatever
decision is made by Morris should be one that he would want others in his position to take in similar
situations for similar reasons. In other words, Morris may be establishing a firm policy on this issue and
setting a tone for other staff members based on how he handles the dating relationship between Giles and
Regas. Whichever option he chooses, it is important for Morris and the firm to realize that consistent action
should follow when others are involved in similar situations.
Another important element of the decision is that Regas may believe that her rights are violated if she is
“forced” to resign or is terminated from employment with the accounting firm. This could be a particularly
sensitive issue if her performance meets or exceeds all of the firm’s standards for its senior staff members.
If Regas believes she has been wrongly fired, she may seek legal recourse against the firm for its action.
Justice Theory: There are many issues to consider from a justice perspective in evaluating the two
alternative courses of action. First, if Morris does, in fact, establish a firm policy with his decision, as
suggested above, then the new policy should treat all staff members fairly. For example, let’s assume that
Regas is fired because Giles is a partner with an ownership interest in the firm. Then, if another situation
develops where a manager dates a senior, the employees involved and other staff members may expect that
the senior will be fired regardless of that person’s gender. Otherwise, some staff members may come to
believe that the firm discriminates in enforcing its policy. Specifically, if the manager is a woman and the
senior is a man, the justice theory requires that the man should be fired because he is of lower rank in the
firm.
On the other hand, the fairer approach may be to terminate the employee who has contributed less to the
firm’s success in terms of performance and client service. Future potential also could be considered. For
example, let’s assume that the other partners dislike Giles because he is known to become involved in
situations that compromise the firm’s position. If Regas is a highly productive member of the firm who is
well liked by the partners, other staff members and clients, then it could be that Regas should remain with
the firm and Giles asked to resign.
Another important issue related to justice is the reaction of other staff members to Morris’ decision. If the
other staff members believe that Regas is being signaled out as the scapegoat in this situation, then the
morale of the staff may be negatively affected. The way that the decision is perceived by other staff
members may directly affect their view of the fairness of the decision. This is particularly relevant in the
case because Regas appears to be the one who has exercised proper judgment and Giles seems to be putting
undue pressure on Regas and, perhaps, taking advantage of his position and influence in the firm. Other
staff members may come to resent a decision that demonstrates favoritism toward Giles, regardless of the
circumstances.
When Morris meets with Giles he should be honest and candid regarding the position of the other partners.
Morris should fully disclose the client’s concerns and those of the firm, especially as it pertains to the
possible higher level of billings and violation of firm policy. The way in which Giles reacts to the
statements of Morris and his expression of concern for the firm’s interests and those of the client may be an
important consideration in Morris’ decision. One factor that was previously mentioned and that should have
a significant bearing on the firm’s decision is the contribution of Giles and Regas to the welfare of the firm
and its clients.
What Actually Happened
In the actual case situation, Ed Giles was asked to consider applying for a position as the chief financial
officer of a newly formed entity. That entity hired the accounting firm to help with the executive search
process. Giles knew the owners of the start-up enterprise and was very experienced in their high-
technology type of business venture. Giles applied and was selected as the CFO. The firm’s
recommendation played an important role in the decision.
Susan Regas was asked to stay on because she was evaluated as one of the top seniors in the firm, and both
partners and clients spoke highly of Regas’ judgment and decision-making skills. Giles, on the other hand,
had managed to make some enemies of the other partners, and he was not meeting the firm’s expectations
regarding bringing in new clients.
Regas was eventually promoted to manager and has now been with the firm for nine years. Everyone
expects her to be a partner very soon.
Questions
1. Analyze the behavior of each party from the perspective of the Six Pillars of Character. Assess the
personal responsibility of Ed Giles and Sue Regas for the relationship that developed between
them. Who do you think is mostly to blame?
Trustworthiness and Responsibility are the two pillars primarily affecting this case. Trustworthiness
requires that one be honest; does not deceive, cheat or steal; and be reliable. Giles and Regas were telling
lies and keeping secrets as they broke the rules of the firm and cheating on promises made
2. If Giles were a person of integrity but just happened to have a “weak moment” in starting a
relationship with Regas, what do you think he would say when he meets with Herb Morris? Why?
If Giles were a person of integrity, he could have a “weak moment,” but then would have to explain why
the affair continued. He might claim that once the affair started that the firm’s rules encouraged secrecy and
3. Assume Ed Giles is the biggest “Rainmaker” in the firm. What would you do if you were in Herb
Morris’s position when you meet with Giles? In your response, consider how you would resolve
the situation in regard to both the completion of the CAA Industries audit and the longer-term
issue of the continued employment of Giles and Regas in the accounting firm.
Herb has to assess the situation and the effect on the firm. If he ignores the situation, the rules of the firm
will never be followed. In assessing the situation, Morris will have to consider whether he can prove that
Giles and Regas were actually dating. He will have to assess whether he will be able to trust Giles and
The rationale for the rule is that a sexual relationship between different rank employees leaves the firm
open to charges of sexual harassment. Due to the liability to the firm from sexual harassment, the decision
