Ethics Case

In this mini case Mike Stephan is dealing with a very difficult situation because he is new to the accounting firm and wants to impress the superior accountants on his engagement team. While auditing for EarthWear, he makes a little mistake by spending too many hours looking at the wrong bank statements when he is not supposed to go over a total of 6 hours. Pressured by the senior on the audit, he is caught between lying about his hours or telling the truth and going over budget on the audit, potentially causing the other accountants on the team to look bad professionally. The first alternative that I have learned about when addressing ethical issues as a staff auditor would be to talk to the senior on the team and tell him/her exactly what is going on, but the senior is the one telling him to “eat” his hours. Since the manager is also putting pressure on the senior to pretend the extra hours never occurred, Mike needs to go directly to the partner on the team and tell him the issue. Another alternative would be to listen to the senior and “eat time” so the audit doesn’t go over budget and cost the firm’s reputation. A third alternative would be to record the to correct amount of hours spent on the audit.

The pros of telling the partner about the issue would be that Mike followed his duty as a CPA to act professionally and ethically at all times. His actions would be appreciated by the partner on the team . A firm’s most important asset is it’s reputation and if outsiders knew that the firm was lying about the hours spent on auditing then that would lead them to question what other things the firm might be lying about. A pro for “eating hours” would be that Mike and the other engagement accountants receive a good evaluation by not going over the budget and the firm keeps the illusion of working efficiently to the client. For the third alternative, a pro would be that Mike followed the code of ethics and gets recognized for his honesty and treated with more respect within the firm. A potential con of telling the partner about the issue is that he or she might also be pressuring the senior and manager to make sure an over-budget audit doesn’t happen. This could lead to even more confusion for Mike if everyone on his engagement team is telling him to do something he believes is wrong.

A downside to listening to the senior and lying about the hours would be that Mike acted unethically and went against the accounting code of ethics as well as his own. Lastly, a downside to telling the truth about the hours would be that Mike and the other accountants all receive a bad performance evaluation and the firm looks inefficient to the client. Also, the extra time spent working on the audit might make the accountants look less competent at doing their job. The implications of “eating time” allows the firm to charge an audit at a certain amount of hours that looks good to the client, when in reality the accountants spent additional hours because the budget was not enough to truly complete the audit. For the firm this concept prevents an over-budget audit and the auditors are perceived at being great at their job (since time is money), which the accounting world prides itself on. Mike learned about ethics and how these situations might occur in real life. He knows that “eating time” is unethical and this one request by the senior could lead to a path of more unethical decisions being made down the road. If Mike decides not to listen to Alex and records the accurate time spent on the cash audit, then he is saving himself and the firm from being caught for making a false assertion.

Auditing takes time and efficient use of that time, however, when a mistake is made in time allocation, it does not mean that the firm has justification to lie. This might cause the engagement team to be scorned on working more efficiently, but it is more important for all parties involved that the firm upholds integrity in all situations. It is clear that eating hours is wrong and possibly illegal, so the last alternative to record the accurate time spent auditing cash is the best choice for Mike. It is clear that this firm has a lack in controls since both the manager and senior were pressuring Mike to do the wrong thing. The superior accountants might learn from Mike and realize that what they were asking him to do was unethical.

Also, the firm will not get caught for lying so their reputation will remain undamaged to this client as well as the rest of the audit goes well. If I was in this situation I would have been very scared to stand up to the senior and manager and go against what they asked me to do. However, I would know that by “eating time” I was putting my job in jeopardy since I would be the one to blame because it was my additional hours of work that I chose to ignore in my report. The Professional Code of Ethics for accountants is something that is drilled into all CPA’s especially since the Sarbanes-Oxley Act of 2002. It would be difficult to allow myself to cheat on recording my hours when I have learned all of the consequences of being unethical in the accounting profession.