Auditing (Confidentiality, Misrepresentation of Facts)

BUS 5115 written assignment (unit 2)

APRIL 21, 2021

Case Study: Conflicting Clients

Topic: Auditing (Confidentiality, Misrepresentation of Facts)

People Involved:

 Jennifer Grace, First year member of her CPA firm’s management group
 Tom Ward, CFO of Fantastic Developments, Inc., a client

Introduction

In the case study, Jennifer Grace was seen to be working on an annual audit for CNB and she

came to discover that Fantastic Development company, had a bad financial record and had

applied for a loan to CNB with a falsified or actually unaudited financial statement. She had

done an audit on Fantastic Development company(FD) in the past and Jennifer knew that the

company(FD) was struggling financially. As Jennifer tried pointing the attention of the CFO of

FD to these anomalies, she then got to realize that the firm now has a new CPA firm for its

auditing concerns. Jenifer was suspicious of FD and was asking serious questions. She suspected

that the company could be hiding something that CNB (the loan provider) should know. In

reality, Jennifer could not really confirm her suspicion because her firms engagement in the audit

of FD was terminated. The termination was suspicious but there is no basis for this suspicion.

Ethical Issues and Constrains

The ethical step in this case would be that Jennifer reports her suspicion to SEC or a governing

body or tell CNB through her company or do it by herself maybe as a whistleblowing mechanics.

Jennifer knew all these things and was raising the suspicion however there may not be sufficient

facts to back up her claims. However, reporting these to CNB based on suspicion could be

unprofessional and might affect her Job in her current company. In addition, by legal bindings
and the accounting laws of practice, it is unethical for Jennifer to disclose FD’s information to

CNB without the consent of FD. As an auditor of CNB Jennifer had the responsibility to find out

financial Issues in the company and alert her client about it. However, to fulfill her current

ethical responsibility as an honest auditor, she will have to break this confidentiality, FD

company is really trying to cheat CNB with a falsified financial statement and if probed further

this can be detected.

One major constrain is that Jennifer does not really have any evidence to substantiate her claim,

it was just a suspicion. In fact, FD has a company may have really turned things around and

cover their tracks by the time Jennifer takes further steps. Furthermore, FD is a privately owned

organization and as such they are not under cohesion legally to disclose their finances to the

public or media.

Stakeholders

There are 4 stakeholders seen in this case study. Fantastic development, CNB company, Jennifer

Grace and Tom ward. All managers, employees and clients of these companies could also be

considered as stakeholders in this case study.

Alternatives/Specific action Jennifer should take.

In the light of the Issue at hand, Jennifer has the following options available to her depending on

the risk involved, policies guiding her company and facts found:

1. She could do nothing, submit completed audit and move on since her company contract

was terminated.

2. She can inform CNB of the anomalies she observed and why she thinks the contract was

terminated.
 3. She can let FD know what she observed in clear terms and advise them to make amends

else she will escalate.

4. She has an option of quitting CNB and just stay off this whole dilemma.

As a suggestion or recommendation, Jennifer needs to first confirm from her direct superior in

the company and maybe confide in her manager in this regard and get advice with respect to the

company’s policy guiding such escalations. She needs to be smart about it and state clearly that

is just a suspicion and not a fact yet.

References

Andrew G. Poulos. (2018). Ethical Dilemmas. Poulos Accounting & Consulting, Inc. Drake

Software. Retrieved from https://drake.us/wp-content/uploads/2018/12/Drake-Seminars-

Ethics-Case-Studies-Final-wcd-Formatting.pdf

J.G. Johnson (2010). Decision making under risk and uncertainty. Retrieved from

http://doi.org/10.1002/wcs.76