Running head: CONFLICTING CLIENTS (AUDITING) 1

Conflicting Clients: Auditing (Confidentiality, Misrepresentation of Facts)

Business Law, Ethics, and Social Responsibility: BUS 5115 - AY2019-T4 - Unit 2

Professor Ronald Monard (Instructor)

Date: April 24, 2019

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Introduction

In this assignment, will be touching base on an ethical issue many auditing firms face such as

the one happened in Jennifer case. Jennifer, an engagement manager, in an auditing firm was

reviewing the current-year audit working papers of Coshocton National Bank (CNB). She then

noticed something curious about working papers for valuation of a commercial loan provided by

the bank for Fantastic Developments Company, which happened to be a customer of her auditing

firm. This situation created an ethical issue concerning the auditing firm. So by the end of this

assignment, will be recommending a specific action Jennifer might take to address such a

situation.

The things started when Jennifer already knew that Fantastic Company had been struggling

for a couple of years and had experienced recurring operating losses, because she had served as

the audit senior on the prior-year audit of Fantastic. The other thing that raised concerns is when

Fantastic had not responded to either the initial or second confirmation request by her Jennifer

firm even when Jennifer contacted Fantastic’s CFO, Tom Ward, and inquired about the

company’s apparently miraculous turnaround, he was noncommittal and unhelpful. Tom replied

that business had picked up. The previous responses and the set of recent unaudited financial

statements that would show Fantastic’s solid financial position and operating profitability raised

more concerns with Jennifer whether the financial statements which Fantastic furnished to the

bank as a basis for a loan application are fraudulent. The bank apparently has no such suspicion,

however.

Now the stakeholders involved in this case are; the bank with its stakeholders; Fantastic

Development Company with its stakeholders; the auditing firm stakeholders. The overarching

ethical issues is summarized in three aspects; Jennifer’s responsibility to take action about
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Fantastic suspicious fraudulent papers; the interests of the auditing firm (and stockholders)

balanced against the environmental interests; the obligation of the auditing company has to

future generations and citizens. The answer to the three previous concerns is that, because

Jennifer spotted something, which is not right in Fantastic documentation, she had to take action.

This action is from two perspectives, one is from justice perspective (Santa Clara University,

n.d.) to be fair to her audit practice, and where she is expected to provide the right opinion about

the bank practices (Santa Clara University, n.d). The other is from ethical perspective, where she

needs to prevent the harm and maximize the benefits for all the stakeholders involved ( Curtis &

Burt, 2007). e.g. the bank and her company and even Fantastic company stakeholders. Honesty

as a value is expected from all audit firm as it reflects to both fairness and ethical behavior. This

legacy needs to be left as an example to the future generations and citizens (Business Ethics,

2012).

Therefore, what are the possible course of action alternatives Jennifer have and its ethical

implication. First, is to leave everything as it is since the bank sees no issue with Fantastic

company , and as long as everything is reported accurately why then she should bother. This

alternative in one sense is just because she relied on bank information where the bank sees no

issue with Fantastic documents and ethical because she didn’t reveal information about her other

client which might be confidential information about his bad situation. The other alternative is to

include her comments on the year audit results of the bank papers and consult with them that this

situation has to be corrected with the Fantastic Company. From a just perspective, This

alternative is fair (Santa Clara University, n.d.) to her practice since she expressed what she

believes is the right opinion and from ethical perspective, she is protecting her customer by
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protecting its interests through informing the bank that his customers is showing signs of not

being reliable. This if not solved could harm the bank in the future.

The constrain Jennifer has for first alternative -which is doing nothing and keep

everything as is based on Bank feedback- is that it is possible in the near future things get worse

with Fantastic company and they get bankruptcy, then this will have its repercussions on the

auditing firm which approved the audit papers of the bank. This leads to bank losses because

although Audit firm knew about the Fantastic situation, they didn’t notify the bank to take action

about it. The constrain of the other solution, is that since already Fantastic firm no more want to

deal with her company for auditing service, they can advise the same thing for their bank. The

bank then, after the audit, cancels the contract with Jennifer Company. They may also refuse her

comments on the report. By this, Jennifer Company loses two clients. In summary, we can say it

is a complicated situation for Jennifer to make a decision, from one aspect she wants to do what

is right as an audit practice with the bank and from other aspect she might preach confidentiality

of information of Fantastic company which is in the last year was her company client

In conclusion, my advice on this situation is for Jenifer to take the second alternative and

to include her comments about Fantastic Company in the bank Audit report. She also encourages

the bank to follow up on documentation of Fantastic Company but by not telling the bank what

she already knows. This is ethical and just because it is the right practice of Audit e.g. loans with

no sufficient documents are not accepted like not having audited financial statements. In this

way, Jennifer is fair to her practice and ethical for both companies.
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References

Business Ethics (2012). This book is licensed under a Creative Commonsby-nc-sa 3.0 license.

Retrieved from: http://2012books.lardbucket.org/books/business-ethics/index.htmlHome.

(n.d.). Retrieved from https://www.hikma.com/home/

Curtis, J. R., & Burt, R. A. (2007). Point: The Ethics of Unilateral “Do Not Resuscitate” Orders.

Chest, 132(3), 748-751. doi:10.1378/chest.07-0745

Santa Clara University. (n.d.). Justice and Fairness. Retrieved from

https://www.scu.edu/ethics/ethics-resources/ethical-decision-making/justice-and-fairness/

Taylor, A. J. (N.D.). Ethics and Compliance Based Leadership Models: Essential to Compliance,

and Performance. ACAMS. Retrieved from: http://www.acams.org/aml-white-paper-

ethics-and-culture-of-compliance/