CASE 5.7
RICHARD GRIMES, STAFF ACCOUNTANT
Synopsis
This brief case revolves around a set of circumstances involving a staff accountant with a Big
Four audit firm who unintentionally “eavesdropped” on a conversation involving two client
executives. The young auditor happened to be retrieving documents he needed to complete an audit
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Richard Grimes, Staff Accountant—Key Facts
2. While retrieving documents that he needed to complete an audit procedure, Grimes
unintentionally overheard a conversation between MMC’s COO and the company’s controller.
3. During the conversation, the COO informed the controller that a customer would be declaring
4. The controller told the COO that the expected loss on the receivable had to be “addressed
5. The COO sternly told the controller that MMC would not “borrow trouble” by referring to the
6. After the conversation between the COO and controller ended, the COO discovered that Grimes
8. After being “dressed down” by the angry COO, Grimes had to decide what to do next.
306 Case 5.7 Richard Grimes, Staff Accountant
Instructional Objectives
1. To illustrate an ethical dilemma faced by an auditor.
Suggestions for Use
This is a brief case that you can “slip” into an undergraduate or graduate auditing course at
almost any point. I often use cases such as this to give my students a 20-30 minute “break” from
covering arduous technical topics in an auditing course. Notice that the first instructional objective
suggests that this case can be used to introduce students to a type of “ethical dilemma” that auditors
may face in their professional roles. You may disagree that the dilemma faced by Richard Grimes in
Suggested Solutions to Case Questions
1. The topic of “subsequent events” is addressed in AU Section 560 of the PCAOB’s Interim
Standards and AU-C Section 560 of the AICPA Professional Standards. Generally, there are two
types of subsequent events:
a. Those that provide evidence of conditions that existed at the date of the financial statements.
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2. Following are the principal decision alternatives that Richard has:
a. Immediately convey the information regarding the customer bankruptcy to his
superiors.
An interesting facet of this case that typically surfaces when it is being discussed is whether or
not Richard Grimes is facing an “ethical dilemma.” Some of your students may suggest that he is
facing an ethical dilemma because he must decide whether or not to convey the sensitive information
that he has stumbled upon (by way of serendipity) to his superiors on the audit engagement team.
Students voicing this point of view maintain that by passing on the “secret” information to his
superiors, Richard would be violating the expectation of privacy that the two executives had when
they were discussing the given matter. These students also recognize that by not passing the
3. This issue often arises when the previous question is being addressed. Some students maintain
that Richard was “at fault” for not making his presence known to the two executives. A related point
of view is that Richard should have left the alcove when he realized that the two executives were
4. As I suggested in the “Suggestions for Use,” you might explore this possibility by engaging in a
role-playing exercise where multiple sets of students recreate the scene involving the two executives