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Case 8-1 Research Triangle Software Innovations (a GVV case)
Research Triangle Software Innovations is a software solutions company specializing in
enterprise resource planning (ERP) business management software. Located in the Research
Triangle Park, North Carolina, high-tech area, Research Triangle Software Innovations is a
leader in ERP software.
Oak Manufacturing is located in Raleigh, North Carolina. Oak is a publicly owned company that
produces oak barrels for flavoring and storage of wine products. As the largest company of its
kind in the Southeast, Oak Manufacturing serves all 50 states and other parts of North America.
Steve Michaels is Tar & Heel’s advisory manager in charge of the Oak Manufacturing
engagement. He is reviewing the criteria used for software selection as follows:
• Alignment with client’s needs
• Operations integration
• Software reliability
Steve calls Rosanne Field into his office to discuss her selection. This is Rosanne’s first job as
the lead advisory staff member on a software selection decision. She has great credentials having
graduated with a bachelor’s degree from the University of North Carolina, a masters from North
Carolina State, and a computer science doctorate from Duke University. She has five years of
experience in advisory services and has received glowing evaluations.
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Steve asks Rosanne to explain why Research Triangle Innovations was selected. She goes
through the ranking of the criteria. It seems the firm’s total score was slightly below Research
Triangle’s but higher than Longhorn Software’s.
Steve asks Rosanne a few pointed questions about the selection process including: (1) Is she
aware that Research Triangle is an audit client of the firm? (2) Did she consider management’s
desire to push the firm’s own software? (3) Did she consider that the selection of the firm’s
software would enable it to fine-tune the product with the experience and feedback from Oak
Manufacturing and enhance future sales?
Rosanne carefully considers what she is being asked to do. Steve was not very subtle in making
his expectations known. Rosanne knows if she is going to make a strong case for staying with the
Research Triangle selection, she had better be able to counter Steve’s arguments.
Rosanne decides to speak with Rebecca Chang, her best friend who happens to be on the audit
engagement of Research Triangle. Rebecca isn’t sure whether she should share the information
she has about the client with Rosanne. However, they are best friends and their siblings are
married to each other. In the end she figures it’s a case of “no harm, no foul.”
Questions
1. What are the ethical issues in this case? Discuss the obligations of Tar & Heel to its
stakeholders.
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This case provides an opportunity to discuss a variety of ethical issues related to providing ERP
services for an audit client under a consulting agreement with that client. First, the question
arises whether performing ERP planning and implementation services is a nonaudit service
prohibited by the Sarbanes-Oxley Act when performing such services for an audit client. The
rule adopted by the SEC on this matter says that “This prohibition also does not preclude the
Next, the ethical issue is what are the ethical standards when performing consulting services. The
AICPA has issued Statements on Standards for Consulting Services (SSCS). SSCS section 100
(SSCS No. 1) provides the following guidance.
The general standards of the profession are contained in the “General Standards Rule” of the
AICPA code (ET sec. 1.300.001 and 2.300.001) and apply to all services performed by members
[CPAs]. They are as follows:
• Professional competence. Undertake only those professional services that the member or
the member’s firm can reasonably expect to be completed with professional competence.
The following additional general standards for all consulting services are promulgated to address
the distinctive nature of consulting services in which the understanding with the client may
establish valid limitations on the practitioner’s performance of services. These standards are
established under the “Compliance with Standards Rule” of the code (ET sec. 1.310.001 and
2.310.001):
• Client interest. Serve the client interest by seeking to accomplish the objectives
established by the understanding with the client while maintaining integrity and
objectivity.
• Understanding with client. Establish with the client a written or oral understanding about
the responsibilities of the parties and the nature, scope, and limitations of services to be
Professional judgment must be used in applying Statements on Standards for Consulting Services
in a specific instance because the oral or written understanding with the client may establish
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constraints within which services are to be provided. For example, the understanding with the
client may limit the practitioner’s effort with regard to gathering relevant data. The practitioner is
not required to decline or withdraw from a consulting engagement when the agreed-upon scope
of services includes such limitations.
Tar & Heel has an ethical obligation to the shareholders of Oak Manufacturing to ensure the
firm’s independence is not tainted by its relationship with Oak and its management and that it
doesn’t allow the audit relationship with Research Triangle Software Innovations to impair its
judgment with respect to recommending its ERP product given that it is also an audit client of
Tar & Heel.
Another issue is the confidentiality of information obtained by Rosanne from her friend,
Rebecca, who is on the audit engagement of Research Triangle. Rebecca shared that the
company was given a going concern alter in its audit report because of questions whether it will
be able to continue to generate sufficient cash flows from earnings to continue its operations.
2. Characterize the kind of leadership demonstrated by Steve Michaels.
Steve is the advisory partner on the Oak Manufacturing ERP engagement. He is discussing the
selection of the ERP software of Research Triangle with Rosanne Field, the lead advisory staff
member on the engagement. Steve is concerned about the selection of Research Triangle’s
software product not because it is not the best, but due to the fact the firm is trying to market its
own software product. It seems Steve is not exhibiting authentic leadership qualities. It appears
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an altered recommendation. However, it is not ethical to use the client’s engagement to push the
firm’s own product in order to enhance its value for future clients.
Steve is acting in an egoistic way because the needs of the client haven’t even been discussed
other than the ranking system. He doesn’t focus on the key question, which is what happens if
the firm’s software is recommended and problems develop. How might this taint the audit of Oak
Manufacturing?
3. Evaluate moral intensity issues and how they might influence the actions and decisions
of Rosanne.
Moral intensity (Jones, 1991) is an issue-contingent model of ethical decision-making based on
the supposition that situations vary in terms of the moral imperative present in that situation. As
discussed in this chapter, Douglas et al. studied the influence of ethical orientation and ethical
judgment in situations of high and low moral intensity and found that ethical orientation is
related to ethical judgments in high (but not low) moral intensity situations, which appears to
support Jones’ issue-contingent argument. They also found that perceived organizational culture
As discussed in this chapter, Morris studied the influence of authentic leadership and ethical firm
culture on auditor behavior. With respect to ethical culture, there was a negative relationship
between the audit seniors’ perceptions of their firms as ethical, and instances of dysfunctional
audit behavior. The findings support the mediation of perceptions of authenticity in leaders on
the auditors’ perception of ethical firm culture and on auditors’ instances of dysfunctional
behavior.
The takeaway from the Morris study is that authentic leaders can help to promote an ethical
culture and reduce the instances of dysfunctional auditor behavior. Authentic leaders seek to
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4. Assume Rosanne decides to speak to her mentor. From past experience, she knows
Vivian is a team player and has always encouraged Rosanne to do the same. Consider
the following, if you were in Rosanne’s position, in developing a plan to give voice to
your values.
• What is at stake for the key parties, including those who disagree with you?
Steve wants Rosanne to rethink her decision. If Rosanne sticks by her rankings and refuses to
change it to the firm’s software, then Steve may feel betrayed and come to believe that Rosanne
is not a team player. On the other hand, client service is what is most important in this case
• What are the likely objections or pushback from Vivian and others?
Vivian might try to convince Rosanne to support Steve in this matter. If Steve is under pressure
to push the firm’s product, in all likelihood Vivian is similarly influenced. Vivian may push back
• How will you counter those positions? Are there any levers you can use to influence
those who disagree with you?
Rosanne strongest lever is to link her selection to the stated criteria and explain how she met all
the ethical standards in making that choice. The firm should be quite concerned about not
following prescribed ethical and professional standards and might reach a different conclusion if
Rosanne is able to convince the advisory partners that to recommend the firm’s software when it
• What is your most powerful and persuasive response to the reasons and
rationalizations you need to address?
These are mentioned above. Additionally, Rosanne should stress the potential negative influence
on organizational culture once it becomes known by all that Rosanne’s recommendation was