Chapter 6 Hutchison Had Obviously Done So Which Raises

CASE 6.3

HAMILTON WONG, IN-CHARGE ACCOUNTANT

Synopsis

“Eating time” is a taboo subject among public accountants. However, empirical research

suggests that auditors, particularly individuals near the bottom of the employment hierarchy of major

accounting firms, commonly underreport the time that they spend working on their assigned audit

tasks. Why do auditors underreport the time they work? No doubt, to impress their superiors. In

fact, so-called “impression management” has been a major topic of research in the organizational

behavior field in recent years.

This case allows students to identify and discuss the key issues related to the underreporting of

time by auditors. Hamilton Wong is currently working on the audit of Wille & Lomax, the largest

audit client of his office—his employer is one of the major accounting firms. Among his

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Hamilton Wong, In-Charge Accountant—Key Facts

252 Case 6.3 Hamilton Wong, In-Charge Accountant

1. Hamilton Wong is an in-charge accountant on the audit staff of a large international accounting

firm.

3. Another member of the Wille & Lomax audit team is Lauren Hutchison, who is also an in–

charge accountant.

5. Wong is certain that Hutchison has been consistently underreporting the time that she spends

each week working on her Wille & Lomax assignments.

Instructional Objectives

Case 6.3 Hamilton Wong, In-Charge Accountant 253

1. To illustrate an ethical dilemma, namely, whether or not to accurately report the time spent

working on audit tasks, that commonly faces auditors, particularly auditors near the bottom of their

firm’s employment hierarchy.

Suggestions for Use

The key question posed by this case is whether it is improper for auditors to underreport the time

that they spend working on their assignments. You might launch the discussion of the case by

asking students to respond to that question with a show of hands. My experience has been that most

Consider asking students to identify the potential consequences of underreporting time for

(1) individual auditors assigned to a specific engagement, (2) those individuals who will be assigned

to that engagement in the future, and (3) the overall quality of independent audits, in general.

Students often overlook the “zero sum” feature of promotion opportunities in public accounting. In

this case, Hamilton and Lauren are vying for one position. By underreporting her time and

1. Require students to fully explain the choice they make, whether it is a “yes” or a “no.” Students

responding with a “yes” typically suggest that they would be justified in underreporting their time

since Hutchison had obviously done so, which raises the classic “Do two wrongs make a right”

question. These students may also make the interesting observation that Hamilton has already

underreported the time he has worked on the engagement by “eating” the time that he spent helping

Lauren on her accounts. So, why shouldn’t he do the same thing to benefit himself?

Is underreporting time “unethical”? I believe that the simple—and proper—answer to that

254 Case 6.3 Hamilton Wong, In-Charge Accountant

2. Performance appraisal is clearly one key objective of tracking the number of hours worked by

individual audit assignment. Auditors realize that both the quality and quantity of their work is

evaluated. An auditor who does an “excellent” job in “ticking and tying,” putting together organized

and well-formatted workpapers, and writing an articulate and logical memo documenting the work

performed will not receive an “excellent” rating on the given assignment if he or she “busts” the

given tasks are not billed to the client, that information is needed to adjust the audit fee for the

following year’s engagement.

Underreporting time can enhance the performance appraisals of individual auditors. Then again,

these “high marks” come at a price. The individuals who underreport their time are likely to

experience some degree of stress and possibly regret as a result of their questionable conduct. For

3. A naïve answer to this question is that accounting firms should not place too much emphasis on

time budgets in making performance appraisal decisions. In reality, however, time budgets are

among the few objective measures or benchmarks that can be used to assess the performance of

Case 6.3 Hamilton Wong, In-Charge Accountant 255

4. Because of the “up or out” policy that accounting firms, in particular, the major accounting

firms, have historically invoked, the public accounting profession has long been known as having a

“dog–eat–dog” or highly competitive work environment. The most effective measure that accounting

firms can take to mitigate the negative consequences of this policy is to periodically remind lower-