CASE 4.10
WICHITA FALLS
Synopsis
This brief case revolves around the accounting firm that has been registered with the Texas State
Board of Public Accountancy longer than any other firm. Freemon, Shapard & Story (FSS) was
founded in 1920 in Wichita Falls, which at the time was a booming oil town in northwestern Texas,
just a few miles south of the Red River. In 2008, John Barfield, one of the three FSS partners who
each held a one-third ownership interest in the firm, passed away. Over the next two years,
Barfield’s widow attempted to negotiate a settlement with the two remaining FSS partners to
apparently reasoned that Mr. Cannedy would not include false information in a loan application filed
with a federally insured lending institution because doing so is a federal crime. One day before the
jury’s ruling was to be certified by a Texas state judge, FSS filed for Chapter 11 bankruptcy because
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Wichita Falls—Key Facts
1. Freemon, Shapard & Story (FSS) based in Wichita Falls, Texas, is the accounting firm that has
been registered for the longest period of time with the Texas State Board of Public Accountancy.
3. Each of the three FSS partners obtained their accounting degrees from Midwestern State
4. In 2008, John Barfield died; according to the FSS partnership agreement, the “fair value” of
5. The Cannedys offered Ms. Barfield $602,000 for her late husband’s ownership interest in FSS,
an offer she rejected.
6. Ms. Barfield subsequently sued FSS, alleging that the firm had not negotiated a “proper
redemption price” for her late husband’s ownership interest in FSS and had not acted in “good faith.”
7. During the subsequent trial, the jury ruled that the fair value of John Barfield’s one-third
8. The jury apparently believed the $4.59 million value was more credible than the much lower
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Instructional Objectives
1. To examine ethical responsibilities that CPAs have to their colleagues.
Suggestions for Use
This brief case can be used as a “utility infielder” in a graduate or undergraduate auditing course.
That is, you can insert it at almost any point in an auditing course. For example, since you can
probably easily cover the case in 20-25 minutes, you could use it to segue from one major module of
a course to another and, in doing so, give your students a brief break from “big” auditing topics that
may require multiple class periods to cover—such as internal control, audit planning, or the fraud
Suggested Solutions to Case Questions
1. The six ethical principles embedded in the AICPA Code of Professional Conduct include
Responsibilities, The Public Interest, Integrity, Objectivity and Independence, Due Care, and Scope
and Nature of Services. “Integrity” is the ethical principle most relevant to this case. Clearly, the
attorney of Ann Barfield suggested that FSS was not acting with integrity in its dealings with Ms.
Barfield. According the Code of Professional Conduct, “Integrity is measured in terms of what is
just and right. In the absence of specific rules, standards, or guidance, or in the face of conflicting
opinions, a member should test decisions and deeds by asking: ‘Am I doing what a person of
integrity would do? Have I retained my integrity?’” [ET 54.03; Note: This same wording is
2. “Business valuation” is the pertinent phrase in this context. If you review relevant online
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resources, textbooks, and other sources you will identify a wide range of specific variables that
appraisers should consider in determining the “fair value” of a given business enterprise. These
variables include, among others, extant macroeconomic conditions, extant economic conditions or
assumed to be the sum of the values of its individual assets. The market valuation strategy arrives at
a fair value for a business entity by analyzing recent selling prices of comparable entities. A fourth
valuation method sometimes used is the “revenue multiple” method. Under this simple method, the
fair value of a given entity is determined by multiplying its average annual revenues by an agreed
upon factor such as 1.5.
3. The phrase “succession planning” is generally used to refer to the process of “grooming”
replacement candidates for the key leadership positions within a given organization. This is a
particularly important strategic initiative for small to medium-sized accounting firms because such
firms can easily be “wiped out” by the death, retirement, or withdrawal of one of their principal
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profession’s practitioner–oriented journals. Here’s one such example: N. Amato, “Succession
Planning on the Rise, But About Half of CPA Firms Haven’t Implemented a Plan,” Journal of
Accountancy (online), 4 October 2012. As suggested by the title of this recent article, more than
one-half of accounting firms don’t have succession plans in place, which seems quite shocking.
The key to effective succession planning, including what procedures to follow upon the death of