Ethical Obligations and Decision Making in Accounting, 4/e 1
Case 1-4 Lone Star School District
Jose and Emily work as auditors for the state of Texas. They have been assigned to the audit of
the Lone Star School District. There have been some problems with audit documentation for the
travel and entertainment reimbursement claims of the manager of the school district. The
manager knows about the concerns of Jose and Emily, and he approaches them about the matter.
The following conversation takes place:
Manager:
Listen, I’ve requested the documentation you asked for, but the hotel says it’s no
longer in its system.
Jose:
Don’t you have the credit card receipt or credit card statement?
Manager:
I paid cash.
Jose:
What about a copy of the hotel bill?
Manager:
I threw it out.
for the city manager’s office.
Questions
1. Assume that Jose and Emily are CPAs and members of the AICPA. What ethical
standards in the Code of Professional Conduct should guide them in dealing with
the manager’s inability to support travel and entertainment expenses?
The auditors are doing an audit of travel and expense reimbursements. Most states are
very explicit about what may be reimbursed, the type of receipt required and the
maximum reimbursement by category. Most states will have a stated hotel rate and per
diem rate that employees are entitled to be reimbursed up to the maximum amount. State
auditors will test expense accounts to see if appropriate receipts were submitted. If an
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2. Using Josephson’s Six Pillars of Character as a guide, evaluate the statements and
behavior of the manager.
Trustworthiness, respect, responsibility, and fairness are the values in this case from the
Six Pillars of Character. The manager should be honest, not deceive or steal. Both the
manager and the state auditors should be treated with respect, use of good manners, do
not threaten anyone and deal peacefully with anger and disagreements. Both should take
3. a. Assume that Jose and Emily report to Sharon, the manager of the
school district audit. Should they inform Sharon of their concerns?
Why or why not?
Yes, Jose and Emily should inform Sharon of their concerns. No supervisor likes
surprises. Depending on their experience level it may be very appropriate that
b. Assume that they don’t inform Sharon, but she finds out from
another source. What would you do if you were in Sharon’s position?
Sharon should wait for the results of the audit before deciding what to do even if
she found out about the situation in another way. She can discuss that matter with
Jose and Emily but Sharon needs to know all the facts before acting.
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