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Case 4
The Audit
I. CASE ABSTRACT
This case deals with personal value conflicts within the context of
established organizational practices, which run counter to stated policy.
The case involves conflicts between professional and possibly personal
values on the one hand and peer pressures to conform to the other.
Coworkers put pressure on Sue to drop the matter. If she goes over the
head of the partner in charge of the audit, she will get them all in
trouble as they have ignored the practice in prior years’ audits. They
said that while they realized that it was probably wrong, they were sure
their supervisor wanted them to ignore it again this year. They encourage
her to be a “team player.”
Decision Date: No Date
II. CASE ISSUES AND SUBJECTS
CPA Firm Ethics and Moral Relativism
Personal Values versus Group Norms Corporate Culture
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The Audit
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III. STEPS COVERED IN STRATEGIC DECISION–MAKING PROCESS
(See Figure 1.5 on pages 52 and 53)
Strategy Formulation
Strategy
Implementation
Evaluation &
Control
O =Emphasized in Case X=Covered in Case
IV. CASE OBJECTIVES
1. To help students identify personal value conflicts that occur in the
3. To introduce the counterpoint that the act of disagreeing with one’s
supervisors may also lead to unanticipated consequences.
4. To focus on the ethical dilemma posed by a violation, which is
5. Overall, to provide a vehicle for discussing the relationship between
personal values, group norms, and codes of ethics.
V. SUGGESTED CLASSROOM APPROACHES TO THE CASE
1. This is an excellent value case for open class discussion.
3. This is an excellent case for role–playing followed by questioning by
the students.
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The Audit
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VI. DISCUSSION QUESTIONS
1. What would you do in this situation if you were Sue?
2. Should Sue go over the head of the partner in charge of the audit to
upper management? What are the pros and cons of such a decision?
VII. CASE AUTHORS’ TEACHING NOTE by John Kilpatrick, Gamewell Gantt, and
George Johnson*
A. Teaching Objectives
These were listed in Section IV, “Case Objectives.”
B. Discussion Questions and Answers
1. What are the responsibilities or obligations that the main
characters in the case owe to themselves?
This is the issue of personal integrity and the duty one owes to
2. What are the responsibilities or obligations that the main
characters in the case owe to the organization?
In our experience at this point, questions of loyalty to the
*Reprinted by permission of the case authors.
3. What are the responsibilities or obligations that the main
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The Audit
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characters in the case owe to their profession?
One of the distinguishing characteristics of professionals is the
tendency to identify more with their chosen profession than with any
Excerpts from relevant sections of the state of Idaho’s Code of
Ethics for certified public accountants appear below:
Rule 202—Auditing Standards. A licensee shall not permit his name to
be associated with financial statements in such a manner as to imply
that he is acting as an independent public accountant unless he has
Rule 103—Accounting Principles. A licensee shall not express an
opinion that financial statements are presented in conformity with
generally accepted accounting principles if such financial
statements contain any departure from such accounting principles
Rule 301—Confidential Client Information. A licensee shall not
without the consent of his client disclose any confidential
information pertaining to his client obtained in the course of
performing professional services.
An accountant who violates the ’profession’’s code of ethics can be
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The Audit
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4. What are the responsibilities or obligations that the main
characters in the case owe to their peers?
Most students will be able to identify with the peer pressures that
5. What are the responsibilities or obligations that the main
characters in the case owe to the business community?
Edward T. Hall, a cultural anthropologist who has written a number
of books dealing with the practices of subcultures, suggests that
6. What are the responsibilities that the main characters in the case
owe to the broader community?
This issue allows the issues identified above to be extended to the
7. What are the implications for the individual of each of the options?
Discussion of this issue can be useful in getting the students to
Case 4
The Audit
8. How does an organization ensure that the policies, which it
develops, will be followed by organization members?
This, of course, is an issue for which there is no short or easy
9. What impact does an organization’s reward system have on member’s
decisions when confronted by ethical dilemmas? Specifically, what
are the implications of asking for “ethical conduct” while rewarding
solely on the basis of narrowly defined (short–term) performance
goals?
This is simply an extension of the “reward structure” question
10. How does a group leader balance between the need to work with his
or her group and the need to provide strong leadership?
Management and organization behavior classes focus attention on the
11. What is the role of trust in these matters? What are the costs and
benefits of using “administrative controls” versus trusting
employees to act in good faith?
It can be argued that the tendency in many American firms has been
to rely on administrative controls: the greater the perceived level
of “misbehavior” the more tightly bureaucratic and rule oriented the
firm becomes. This line of argument suggests that frequently
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C. General Discussion
Short cases provide a number of advantages to an instructor. They can
easily be slipped into a course when the instructor or students need a
change, or when something planned does not work out. Since the text is
only a page or two, students can be given time to read the case in
class with minimal lost time. Also, at times it seems that students
today struggle with a steady diet of business ethics “essays.” The use
of short cases provides some relief and can be used on very short
notice.
We have used “The Audit” for a number of pedagogical purposes. The case
focuses very clearly on an example of the potential conflicts between
group norms and personal and professional standards, of the type which
the students will face as they begin their professional lives. The
situation serves to highlight the importance of personal values,
organizational culture and the responsibilities of management in
ensuring an environment in which personal and professional standards
are respected.
For “The Audit,” the instructor should be aware of the auditing
standards, which require the noting of certain practices in the audit
report as well as some knowledge of the specific standards dealing with
the accounting for “independent contractors.” A brief discussion of
relevant auditing standards is included below for the instructor’s use.
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The Audit
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management refused to modify its statements to reflect the correct
expenses and liabilities involved.
Not all of the above–specialized knowledge concerning the position of
the accounting profession is necessary to use “The Audit” in non–
accounting classes. The information is included in this teaching note
for use in upper–level accounting classes where students may have had
some exposure to the profession’s guidelines. It is also included to
provide background information for instructors who may wish to use the
case in general management courses that typically include a broad
cross–section of business majors.
peers and the partner in charge of the audit for her to “drop it.”
VIII. STUDENT STRATEGIC AUDIT/STUDENT PAPER
Sue is in a difficult position, one with far–reaching consequences. To
make it worse, she is receiving a great deal of pressure to do nothing,
and the others involved are presenting what seem to be quite a few
arguments supporting their position.
Sue’s coworkers, Bill and Mike, echoed the sentiment by urging Sue to be a
“team player.” They pointed out that it had been ignored in the past. If
Sue were to follow through, her coworkers’ careers would be jeopardized.
In addition, her relationship with her superiors would be so threatened,
and it would possibly force her to leave the firm.
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all likelihood, be a material amount. The stockholders rely on an
auditor’s clean opinion to ensure that there is not a material deviation.
As stated previously, Paul hinted at possible negative actions were Sue
not to let the issue die. I question whether this is a type of firm one
would want to work for anyway. To tailor an opinion because of the risk of
losing a client is a very dangerous practice and a highly unethical one.
It defeats the entire concept of an auditor’s independence.
Case 4
The Audit
EXHIBIT 1
PROS AND CONS OF PURSUING THE ISSUE
Do Not Pursue Issue Pursue Issue
–Better relationship with superiors. – Impact on conscience.
–Better relationship with co–workers. – Make a firm statement
about her beliefs.
Pros —Wouldn’t risk losing account. – Act in manner firm
–Firm’s members confirmed practice –Damage relationship with
was not correct. coworkers.
–Potential liability. –Damage her future
IX. EFAS, IFAS, and SFAS EXHIBITS
Were inappropriate for this case.
X. FINANCIAL ANALYSIS