CASE 6.5
AVIS LOVE, STAFF ACCOUNTANT
Synopsis
While completing a cash receipts cutoff test, Avis Love, a staff accountant employed by one of
the large, international accounting firms, discovered several year-end cutoff errors in her client’s
cash receipts and sales accounts. The client, Lowell, Inc., operated a chain of retail sporting goods
stores in the South. Lowell had sponsored a sales promotion for the final quarter of the year under
audit. The promotion, which was intended to jump-start Lowell’s sagging sales, included bonuses
Over the past several months, Avis had become well acquainted with several of Lowell’s store
managers while performing interim tests of controls and observing physical inventories at individual
stores. One of those store managers was Mo Rappelle, who had been particularly helpful and
gracious to Avis during her visit to his store. Unfortunately, Mo’s store was among the three stores
that had cutoff errors at year-end.
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Avis Love, Staff Accountant—Key Facts
262 Case 6.5 Avis Love, Staff Accountant
1. Avis Love, a staff accountant for one of the major accounting firms, was assigned to the annual
audit of Lowell, Inc., which operated a chain of retail sporting goods stores in the South.
3. The motive of the three store managers was apparently to inflate the bonuses they would receive
as a result of a fourth-quarter sales promotion.
7. Avis considered dropping Mo’s store from her cutoff test results but then relented.
Instructional Objectives
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1. To examine an ethical dilemma commonly faced by staff accountants, namely, reporting audit
test results that reflect poorly on a client employee with whom the accountant has developed a
personal relationship.
Suggestions for Use
Poor Mo, poor Avis. Mo, an underpaid and overworked store manager, has “ripped off” his
company for $100. Avis, a staff accountant for the audit firm of Mo’s employer and a new friend of
Mo’s, must turn her buddy into the authorities, i.e., the company’s CEO who doubles as a drill
instructor. This case provides future auditors with a dose of reality. My experience has been that
This case can easily be integrated into class coverage of audit tests appropriate for an audit
client’s revenue cycle. Alternatively, instructors could use this case while discussing ethics, the
purpose being to raise an ethics issue that is not given much “press” by the profession.
An effective method of initiating discussion of this case is to take a confidential poll of students
using plain paper ballots. I simply ask each student to write “yes” or “no” on the ballot: “yes” he or
she would have “turned in” Mo Rappelle; “no” he or she would have let Mo off the proverbial hook.
After collecting and counting the ballots, I post the results on the board and begin probing students’
1. No. Once Avis selected the sample of twenty stores, she should have applied her audit
procedures to each of those stores. AU 350.25 discusses auditors’ responsibilities in this context.
“Audit procedures that are appropriate to the particular audit objective should be applied to each
sample item.” The professional standards go on to note that it may not be practical for an auditor to
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2. Listed next are individuals potentially affected by the ethical dilemma that Avis faced.
(a) Herself: Students often overlook the responsibility that an accountant has to herself or
himself. An individual who exercises poor ethical or moral judgment may lose not only the
respect of others, but more importantly, his or her self-respect.
(b) Teddy Tankersley: As Avis’s immediate superior, any improper or unethical decision that
(d) Other members of the accounting profession: Poor judgment by an individual accountant, if
widely publicized, can serve as a “black eye” for the entire profession. [Here a good
example can be drawn from Case 4.1, Creve Couer Pizza, Inc. Review the circumstances
surrounding James Checksfield’s decision to serve as an informant for the IRS in a tax fraud
case involving one of his clients.] Avis had an obligation to consider the impact of her
decisions and actions on her colleagues in the profession and on the future of the profession.
(e) Officers, employees, stockholders, creditors and other parties with a direct or indirect
3. No, the AICPA Code of Professional Conduct does not prohibit auditors from developing
friendships with client personnel. However, auditors must recognize that such friendships can prove
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To prevent client friendships from interfering with their professional responsibilities, auditors
4. The principal objective of such tests is to determine whether the client has violated the
transaction-related “cutoff” assertion discussed in AU Section 326.15: “Transactions and events
have been recorded in the correct accounting period.” That is, the auditor is searching for evidence
5. Notice in the case that Avis apparently assessed the materiality of the backdated sales/cash
receipts for Mo’s store independently of other similar errors in Lowell’s accounting records. That
method of evaluating errors discovered in a client’s accounting records is inappropriate. Instead, an
auditor should attempt to project or extrapolate the misstatements found in his or her sample to the
entire client population.
In this case, Avis could have projected the sales cutoff errors discovered in her sample to the
client’s total population in several ways. (Note: Here, we focus on the sales cutoff errors since they
Lowell’s stores. After arriving at a reasonable estimate of the total sales cutoff error, Avis or a
superior should have compared this figure with “the tolerable misstatement for the account balance
or class of transactions” (AU 350.26). If the estimated sales cutoff error was equal to or higher than
the tolerable misstatement, the auditor would likely have concluded that a material error existed in
the sales account. (Recognize that after arriving at the projected sales cutoff error, Avis’s firm
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For example, any error that changes pre-tax earnings by five percent or more might be deemed a
material error. Finally, auditors must consider qualitative factors when reaching tolerable