Deck 7: Professional Issues

Question 1

How do you believe that Bud should have reacted when Saunders told him why he had been removed from the audit engagement team

Answer 1

It is difficult to know what sort of response the employee "should have had," without being in that particular situation as a minority (racial, gender or otherwise).

Question 2

Do you believe that Anton Nikolov has dealt with his concerns regarding Elizabeth Wallace appropriately Did he behave ethically in discussing that matter with Julius Shen Defend your answer.

Answer 2

AN did not deal appropriately with his concern regarding E. According to AN, the source of unpleasant behavior of E was a serious personal problem namely a drug problem. Any small inconvenience may cause her anger and E immediately directs her anger to the nearest subordinate. As E is the superior of AN so, discussing the problem of superior with an audit engagement partner J is not seems to be ethical.
Both AN and J doubt that E has been suffering from addiction problem. The actions driven by AN considered to be as backbiting. In addition the invitation of AN to J, an audit engagement partner of a company, for lunch without considering E was unethical. The similar action of AN made him as a distrustful subordinate. Therefore, the overall approach of AN to dealt with E was not appropriate.

Question 3

The key events in this case transpired during the late 1970s. Do you believe that such a series of events could occur now Explain. Copyright

Answer 3

The case discloses that these events occurred in the 1970s. While such a situation may be less likely to occur today as a result of increased awareness and education about discrimination and the potential personal and professional penalties for individuals and businesses that engage in discriminatory practices, it is unreasonable to expect that such situations no longer occur. They may be less frequent in the U.S., but such practices may be more acceptable outside the U.S.

Question 4

How should Julius respond to the matter involving Elizabeth Identify the key factors that he should consider in deciding how to proceed.

Question 5

Do public accounting firms have a responsibility to facilitate the career success of female employees Why or why not Identify policies accounting firms could implement to increase the retention rate of female employees.

Question 6

Do public accounting firms have a responsibility to monitor their employees for the purpose of identifying individuals who have substance abuse problems Do these firms have a responsibility to help their employees address such problems Defend your answers.

Question 7

In business circles, one frequently hears references to the "old boy network." Many women in professional firms complain that their gender precludes them from becoming a member of the old boy network within their firm. Define, in your own terms, the phrase old boy network. Should professional firms attempt to break down these networks

Question 8

As a general rule, do you believe that "professionals" should be compensated for the overtime they work Defend your answer.

Question 9

Suppose that an audit client objects to a given auditor because of his or her gender or race. Identify the alternative courses of action the auditor's employer should consider taking in such a case. Which of these alternatives do you believe the accounting firm should take Defend your answer.

Question 10

At what level within an accounting firm do accountants qualify as "professionals" Which employment levels (staff accountant-that is, an employee below the rank of audit senior; audit senior; audit manager; audit partner) do you believe should be compensated for overtime that they work Explain.

Question 11

The nepotism rules of many professional firms pose a major inconvenience for married couples who work for, or would like to work for, those firms. Discuss the costs and benefits of these rules in a public accounting setting. In practice, do you believe these rules are equally fair (or unfair) to both sexes

Question 12

A key issue in the overtime lawsuits is whether audit staff below the position of audit senior require close supervision and have the ability and authority to exercise "independent discretion and judgment." Do professional auditing standards mandate that these employees be closely supervised Likewise, do those standards prohibit these employees from exercising independent discretion and judgment

Question 13

Describe what you believe is implied by the term "engagement risk." What are the key factors likely considered by Deloitte and other audit firms when assessing engagement risk How, if at all, are auditors' professional responsibilities affected when a client poses a higher than normal degree of engagement risk

Question 14

Observers of the accounting profession suggest that many courts attempt to "socialize" investment losses by extending auditors' liability to third-party financial statement users. Discuss the benefits and costs of such a policy to public accounting firms, audit clients, and third-party financial statement users, such as investors and creditors. In your view, should the courts have the authority to socialize investment losses If not, who should determine how investment losses are distributed in our society

Question 15

Will the overtime policy of prospective employers influence your job choice Why or why not

Question 16

What quality control mechanisms should major accounting firms have in place to ensure that audit partners have the proper training and experience to supervise audit engagements

Question 17

Auditors' legal responsibilities differ significantly under the Securities Exchange Act of 1934 and the Securities Act of 1933. Briefly point out these differences and comment on why they exist. Also comment on how auditors' litigation risks differ under the common law and the 1934 Act.

Question 18

Do you believe that either Olivia or Eli acted "unprofessionally" or "unethically" Defend your answer.

Question 19

Identify the accounting standards and concepts that dictate the proper accounting treatment for sales returns. How were these standards and concepts violated by Ligand

Question 20

The current standard audit report differs significantly from the version issued during the 1920s. Identify the key differences in the two reports and discuss the forces that accounted for the evolution of the audit report into its present form.

Question 21

Did Olivia and Eli's relationship likely affect other individuals within their office Explain.

Question 22

During the review of Ligand's first-quarter financial statements for 2004, the Deloitte auditors learned that the company had significantly underestimated its future sales returns at the end of 2003. What responsibility, if any, did this discovery impose on the Deloitte auditors

Question 23

Why was it common in the 1920s for companies to have only an audited balance sheet prepared for distribution to external third parties Comment on the factors that, over a period of several decades, resulted in the adoption of the financial statement package that most companies presently provide to external third parties.

Question 24

Why do you believe that major accounting firms have become more accepting of intra-office dating over the years Do you believe that shift in policy is appropriate Why or why not

Question 25

Since its inception, the PCAOB has been criticized by many parties. Summarize the principal complaints that have been directed at the PCAOB. Do you believe this criticism is justified Explain. What measures could the PCAOB take to improve its effectiveness and efficiency as a regulatory body

Question 26

When assessing audit risk, should auditors consider the type and number of third parties that may ultimately rely on the client's financial statements Should auditors insist that audit engagement letters identify the third parties to whom the client intends to distribute the audited financial statements Would this practice eliminate auditors' legal liability to nonprivity parties not mentioned in engagement letters

Question 27

Do you agree or disagree with Olivia's father that public accountants should keep their professional and personal lives strictly separate Explain.

Question 28

In your opinion, how should Sarah have handled this matter Identify the factors that Sarah should have considered in dealing with the situation. Also, identify the professional and personal responsibilities of Sarah, R. J. Bell, and other relevant individuals in this matter.

Question 29

Under present technical standards, would auditors be required to disclose a company policy similar to Nay's mail rule that they discover during an audit Explain. Assuming such disclosure had been required at the time this case took place, would that disclosure have resulted in the mail rule being discontinued

Question 30

What were the costs and potential costs to Sarah's employer in this case How should accounting firms attempt to prevent these types of situations from occurring Assume that rather than speaking to Bell, Sarah had told the office managing partner about the problem she faced. How should the office managing partner have dealt with the matter

Question 31

Ernst Ernst argued that the mail rule was not relevant to its audits of First Securities since that rule only involved personal transactions of Nay and the escrow investors. Do you agree Why or why not

Question 32

This case took place several years ago. Do you believe that events similar to those that took place in this case could occur now Explain.

Question 33

Define negligence as that term has been used in legal cases involving independent auditors. What is the key distinction between negligence and fraud Between recklessness and fraud For all three types of professional misconduct, provide an example of such behavior in an audit context.

Question 34

How do you believe Alex Saunders should have reacted when Jim Charles insisted that Bud be removed from the bank's audit engagement team What would you have done under similar circumstances if you had been Saunders

Question 35

Assume that the investors defrauded by Nay could have filed their lawsuit against Ernst Ernst under the Securities Act of 1933. How, if at all, do you believe the outcome of their suit would have been affected

Question 36

In your opinion, did Saunders' decision to comply with Charles' request violate any professional or ethical standards Defend your answer.

Question 37

The Restatement of Torts is a legal compendium issued by the American Law Institute. This compendium is relied on by courts in many jurisdictions as the basis for legal rulings. Under the Restatement of Torts , courts have ruled that negligent auditors can be held liable to unknown third parties if those parties belonged to a known group of financial statement users who the auditors were aware would likely rely on the audited financial statements. If this legal principle had been invoked in the Hochfelder case, would the defrauded investors have been successful in pursuing a negligence claim against Ernst Ernst under the common law Why or why not