Ethical Obligations and Decision Making in Accounting, 4/e 1
Case 1-2 Giles and Regas
This case is treated as GVV in the Test Bank IM in Chapter
2. Faculty can assign the case in Chapter 1 or delay it until
Chapter 2, if they plan to use it for GVV testing purposes in
Chapter 2.
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.
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?”
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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 no turning back for me.” She points out to Revilo that the flowers are
Giles’s way of saying he is sorry for some of the comments he had made about her.
“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.
Teaching Notes for the Case
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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
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.
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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.
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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
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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 Susan 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
Giles and Regas have a personal responsibility for their actions. It may be argued that
they are not responsible for their feelings, but they are responsible for acting on their
feelings. Being responsible means doing what you are supposed to do; using self-control;
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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 will 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 deceit. However, that would not be acting
3. Assume that 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.
Morris 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. He will have to assess whether he will be
able to trust Giles and Regas again, while realizing that he cannot coerce a breakup.
Morris must decide whether to fire neither, fire both or fire Giles only. The decision to