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Auditors Giving Value to Clients

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1. Giving value to clients is absolutely essential to especially auditors. Your client, a public company in the jewelry business, is looking to you as their consultant, for suggestions to improve their profit.

2. Inventory Procedures Using Computer-Assisted Audit Tools and Techniques :
In your discussion

Explain the process and benefits of audit sampling.
Assess risks inherent to selected transaction cycles.
Put the tests of controls and tests of balances in audit program format.
Set up a working paper for each listed audit test, explaining how to perform the test and what type of evidence will be used.

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Word document attached explains the importance of giving value to clients and inventory procedures using audit tools.

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Solving Ethical Dilemmas in the Accounting Profession

Stakeholder Interest in the Issue Influence Urgency Persuasiveness Importance
Dan His career and freedom could be on the line if a lawsuit relevant to the issue at hand arose sometime in the future. His career might also be on the line if he doesn't go along with what his boss wants him to do. Low Low Low High
Oliver He needs his subordinate to bend the rules to help the firm gain a big client. High Medium High High
Real Estate Subsidiary The subsidiary need the property to be valued at an inflated level and wants Baker Greenleaf to verify the figure. High High High High
Baker Greenleaf The firm needs 100% of the business of the large client but could be opening themselves up to lawsuits in the future if accounting principles aren't adhered to. High High High High

Daniel Potter, an accountant and auditor for Baker Greenleaf (a big eight firm) has just finished performing an audit for a subsidiary of a large client that his firm wants to become the sole provider of services for . Prior to this engagement, the client had split duties between Baker Greenleaf and another big eight firm and it was thought that a successful outcome now would convince the client to switch to Dan's firm exclusively. During the audit, Dan discovered a piece of real estate that the client had valued at $2 million. In Dan's opinion, the property was really valued at $100,000. When Dan brought the matter to the attention of the client, they responded by stating that the property was to be leased soon and that the value, in their opinion, was correct. Dan put the matter, along with his opinion, in the initial draft of the audit report and handed it to his boss Oliver Freeman who promptly asked Dan to remove it and to render 'clean' opinion. When Dan objects, the report is edited without him and a clean opinion is rendered. In addition, Dan's superior gives him a poor evaluation relevant to the audit. The ethical dilemma in this case lies in the decision between whether Dan should blow the whistle to his personnel department or remain silent and take away from the experience that, in the future, he should be more compliant with the demands of his supervisor.

The stakeholders in this case include Dan, Oliver, Baker Greenleaf, the real estate subsidiary, and the parent company of same. Dan's stake in the matter is his career. If he blows the whistle and is found to be in err, then his poor evaluation will stand and his firm might look at him as difficult to employee. If he does nothing, then his poor evaluation will stand making it more difficult for him to gain employment elsewhere and creating a situation where he is likely to act unethically in the future. In addition, if he does nothing and the real estate issue creates a lawsuit in the future (in the event the audit is used as the basis for the value) Dan's career could be on the line.

Oliver's stake in the situation is getting the business of the new client. Oliver feels that only if a clean opinion is rendered will the client decide to use Baker Greenleaf exclusively for their services. Oliver believes that any obstacle posed by making a case against the real estate valuation is likely to lose the business for his firm. He stated that the inflated valuation wasn't material in the whole scheme of things and should be ignored. In addition, Oliver's career could be in jeopardy should the value of the property create litigation in the future.

Baker Greenleaf's stake in the matter is the potential to gain the business of a large client and the potential for investigations that could stem from lawsuits that could arise in the future should the real estate valuation come into question. The matter is a 'fork in the road' for the firm and depending upon how they handle the situation should Dan decide to protest will send a significant signal as to the type of accountant they are looking to employ in the future and the type of client they want to do business for.

The real estate subsidiary's stake in the matter hinges upon the valuation of the property in question. If the value is rendered lower as a result of the audit, the firm might lose a significant amount of money in any future real estate transactions involving the property. However, the firm could also cheat a buyer by basing a sale on the confirmation of the audit valuing the property at $2 million. If sued pursuant to this matter, it is likely the subsidiary would turn to the audit as a scapegoat.

The parent company's stake in the matter lies in the fact that its reputation is at stake in the event of a lawsuit. If the subsidiary loses a court battle over the real estate valuation, then the parent company's financial reports and association with Baker Greenleaf is likely to come under fire.
Stakeholders, their interest (do not show bias)

The only real solution for Dan in this scenario is to address the issue head on by blowing the whistle to Baker Greenleaf's personnel department. Though this is an unpopular decision for him, his professional reputation is on the line. The auditor is held as an important part of the checks and balances of corporate America. As such, if no auditor ever raises questions and is only concerned with gaining the business of clients, then what Senator Metcalf's opinion is confirmed.

If Dan is so particular and has yet to have had any major disagreements with his employer, it is liekly that they are a reputable firm and will see his side of the argument. Even if they disagree with him, it is possible they will reverse the poor performance evaluation he was given.

As stated, the auditor is held to a higher standard of professionalism. Using the deontologist philosophical approach to making an ethical decision, Dan can act accordingly. One of the most famous sayings associated with this approach is 'let justice be done though the Heavens fall'. Using this framework, Dan should make a decision irrespective of the consequences and shoul, instead, concern himself only with being certain a true opinion is rendered.

It is possible his firm's personnel department will side with Oliver and render the $2 million valuation fair. However, it is unlikely they would feel Dan had done anything wrong by disagreeing. It is also possible they will side with him and render an opinion in line with his $100,000 valuation. In such an instance, Dan is likely to find he is unable to work with Oliver as the two aren't likely to see eye to eye in the future. Oliver is likely to make Dan's life miserable, but Dan has recourse in that event as well. In addition, by raising the issue, it is possible the large parent company would agree with the firm and not want the subsidiary to inflate the real estate's value as it exposes them to litigation.

To summarize, Dan is posed with an ethical dilemma relative to an audit he just finished for a real estate subsidiary of a large corporation his employer Baker Greenleaf wants to gain the business of. During the audit, Dan uncovered a valuation error and rendered the opinion that the value should be lowered from $2 million to $100,000. His superior, Oliver, told him to change the opinion and, when he refused, made the changes for him. In addition Oliver gave Dan a poor performance evaluation. Dan should bring the matter to the attention of the firm's personnel department and fight for justice in the matter despite the fact that the firm might lose the client's business. Dan could become a champion for justice or lose his job. In any event, he can leave with his ethics in tact and can find employment at a firm that values such characteristics.

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