The ethical dilemma faced by Daniel Potter is that of loyalty and integrity. Dan is caught in between this dilemma because he is expected to be loyal to his employer Baker Greenleaf and at the same time maintain his vow of integrity to the profession he adores. As per the prescribed ethical requirements of the American Institute of Certified Public Accountants (AICPA) of which he is a member, he was well aware of when to maintain high levels of independence as an accountant and auditor as well as when to be objective in his analysis so as not to compromise the doctrine of true and fair view of the financial statements. It was clear to him that a cover up of a client’s illegal and misleading activities was an unlawful contravention of the codes of practice.
At the same time Daniel Porter was a loyal employee. He maintains a pleasant rapport with his current employer a fact that is justified by his employer sponsoring his entire tuition emoluments at Acorn Business School. The hard work and enthusiasm with which he works for Baker Greenleaf has seen him tremendously rise through the ranks. He was willing to subordinate his individual self interests for the sake of the company’s good, so unquestionable was his loyalty that he obtained a working slogan of total submission to his master from Colossians 3:22 where Apostle Paul advises slaves to have loyalty to their earthly masters “out of fear of God” After a year and a half of loyalty and faithful service, he faces the test when he is assigned to carry out an independent audit of the wholly owned real estate subsidiary of Baker Greenleaf. From his month long investigations, he encounters a number of audit queries which he manages to resolve amicably except for one major issue which he decides to bring to the attention of the projects’ senior Oliver Freeman. This was a case he uncovered regarding a piece of property whose net book value was placed at $ 2 Million; however according to Dan’s honest and objective estimate, it was barely worth $ 100,000.
His dilemma becomes real when he proposes a write down of $ 1,900,000 that is reasonably supported by facts but this puts him at odds with Mr. Freeman who thinks otherwise. Acceptable standards prescribe that any material misstatements that indicate a significant departure or variance between an auditor’s estimate and that of a client beyond the threshold of 3 % as per the income statement should be disclosed in the notes to the accounts. This particular misstatement was actually 7% of the subsidiaries P & L and although in the overall financial statements of the group it was less than 1 % it was still significantly material from the perspective of the subsidiary and internal reporting. According to Freeman, the financial statements of the subsidiary were purely for internal purposes and did not affect anybody outside the precincts of Baker Greenleaf to warrant such a write down.
Dan proposes a recommendation that the accounts be filed “subject to opinion” to demonstrate that the underlying records do present a true and fair view subject to the $ 1.9 Million write down but Freeman tells him to pluck off the pages in his report that proved the real worth of the property, delete the “subject to opinion” recommendation and replace it with a “clean opinion”. This is in total contravention of the acceptable codes of practice that emphasize objectivity and integrity in the review of client financial statements. It is blatant dishonesty.
The affected parties in the event of such a malpractice would be potential buyers of the property who after purchasing it on an overstated price would realize the misstatement and sue the company for inaccurate disclosure. Dan and Freeman who were the auditors of the project may also be sued for negligence and concealing privy information concerning the accounts. Baker Greenleaf on the other hand may taint its reputation in the industry as a Certified Public Accountant and may even be deregistered and barred from practicing.
Dan has the option of reporting the matter to the other senior partners in the firm because Oliver was too arrogant and had filed an unpleasant evaluation on his personal input on the job. In the event that he is ignored by the partners then he should contact Senator Lee Metcalf and report this malpractice to the appropriate regulatory authorities of the profession. Whether or not his occupation is at stake, he should consider resigning on his job on grounds of frustration and refusal to abate or conceal fraud. This should however come as a last resort alternative. Incase he is fired, he gains a better ground in reporting this to external authorities regulating professional conduct. He will be justified to act this way because expectations of stakeholders within the discipline of accounting have shifted tremendously in the recent past occasioned by events preceding Enron, Andersen and WorldCom.
Attention has particularly zeroed in on the role of the accountant in the recording and presentation of economic vales and transactions affecting a business. The above scams marked a fundamental turning point in the history of the profession introducing fresh principles and renewed codes of conduct that govern the behavior of professional accountants while stipulating clearly the expected services to be offered by the accountant, the professional standards to be fully met as well as ethical considerations are to be fully abided.
Such regulations and guidelines must be observed to the latter as long as one subscribes to the ideals of the profession. Because the reputation of the accountancy profession has suffered in the recent past largely because of professional negligence in the conduct of business, the professional accountant must therefore establish character and ethical values that will promote accountability and appropriate corporate governance