Fact pattern 1:
You are a
CPA. A close friend of yours, Alicia,
has convinced investors to contribute $2,000,000 (two million) to launch an
Internet Start Up company (“The Company”).
Alicia hires Benny and Christie, two of her (and your) best friends to
work at The Company. Alicia will be the
CEO; Benny will be its CFO, and Christie will handle marketing. The Company employs a total of 3 programmers,
which is industry standard to accomplish its goal. The Company employs a total of 6 people. You are then hired as the seventh person, to
help keep track of all of the Company’s financial transactions, monitor the
financial well-being of the business, and present this information to the
investors, as well as to the CFO and CEO.
You clearly and explicitly have a duty to The Company and the Investors.
The
programmers begin work; after 2 quarters, the programmers remain on schedule,
but the web app is not ready yet to launch.
The Company has made zero in revenue.
The programmers have each been paid their industry standard salaries of
$40,000 each (for a total of $120,000 paid to the programmers to date). Christie, as The Company’s sole promoter, has
been paid an industry standard salary of $60,000, and she has delivered amazing
work to date (The Company is widely known, and its web app release date is
highly anticipated). Alicia and Benny
have been paid $130,000 each (for a total of $260,000 between the two of
them). Looking into the expenses, you notice The
Company has had some unusual expenses invoiced and paid through its
accounts—“consultation services” for $25,000 to Alicia’s spouse’s company,
$15,000 of expenses in Europe for hotels and restaurants, etc. You
see your friend the CFO approved these expenses; when you speak with Bennie, he
assures you they are all legitimate business expenses.
You raise
this issue to Alicia, the CEO; she states, “Bennie told me you were concerned
about that; don’t worry, they’re fine.
…Are you going to make waves about this?
If you are, you should probably just quit, as I can’t work with a CPA
who will micro-manage expenses and second guess our decisions. We’re doing fine, drop it.” You
feel that something incorrect is occurring.
Question 1:
Chapters 5 and 6 of our text, “Accounting Ethics,”
identifies a “decision model for accounting ethics.” Using this 5 step process, explain and
develop the feeling that “something is incorrect,” and what you will do about
it (if anything). PLEASE EXPLAIN EACH
OF THE 5 STEPS in this process, as they apply to this fact pattern. The
fact pattern contains AT LEAST 2 threats; as part of your answer, please
explain two threats, and provide the Code citations for those threats. Identify any safeguards you can take that you
think will render the threats to an acceptable level. (20 points)
Question 2:
Chapter 7 of
our text identified different elements or motivations which usually must exist
for fraud, or ethical violations to occur.
Please list THREE of these elements/motivations, and apply them to any
of the individual’s situation in the above fact pattern— to you, or to the CEO,
CFO, etc. (Asked another way: why would
any of the people in the fact pattern violate any ethical duties, how would
they do it, what might they tell themselves while doing so, etc.) (5 points)
Question 3: Additional Facts for Fact
Pattern 1.
You bring
these expenses to the attention of the investors; they immediately decide to
sue all parties involved: each other,
the employees, the officers, and you.
Your state’s Board of Accountancy launches an ethics probe into your
actions. You MUST describe your actions
using TWO SEPARATE theories of ethics—how did your actions conform to those
theories of ethics? Said another way,
how can you defend your actions as ethical, above and beyond any explicit lack
of code violation?
Our text
explained 4 different theories: Social Contract Theory, Deontological Theory,
Utilitarianism, and Virtue Ethics. You
do not need to use any of these four theories—however, if you use another
theory of ethics, please briefly describe its characteristics before explaining
how your actions conformed to those theories.
(15 points)
Question 4:
You are a
CPA. You need more clients; you buy some
“leads” (phone numbers of people who have given their permission to be called
for solicitation of services), and set up an auto-dialer to call these leads
and play a recording into their answering machine. If the person actually answers their phone,
the auto dialer will disconnect the call, and try again every 4 hours until it
can leave a message.
What Rule of
Ethics governs this fact pattern? What
possible violation can this fact pattern create? (5 points.)
Question 5:
You work as
a director of a bank, while concurrently maintaining a separate CPA
practice. A local comes into your bank,
and applies for a loan; you are intimately familiar with his financial
situation, as you prepare his financial statements as well as perform
professional services (bookkeeping, tax prep, etc) for him. You have not yet seen his loan application’s
information. What Rule might be
triggered by this fact pattern, what threat may be in effect, and what
safeguards can you think of to help prevent the threat? Remember: you are already a director, and the
local has already applied for a loan, so safeguards like “Do not enter into
this arrangement” will not work. (5
points)
