Auditing Question

Background

You are a manager in the audit division at Miller Yates Howarth (MYH), an accounting firm with offices throughout the major regional centres of NSW and Queensland. Although a medium sized firm by national standards, MYH is the second largest regional accounting firm in Australia. Most of MYH’s audit clients are in the agriculture, mining, manufacturing and property industries. All of those industries are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas competitors.

Ethical Issue

Janelle Davis is one of the audit seniors at MYH and came to see you about an issue that she finds worrisome. Janelle is part of the audit team that audits Great Gold Limited (GGL), a company that extracts and refines gold at a local mine. She is also on the audit of Big Machine Limited (BML), a company that leases and services large mining machinery to a number of the gold mines in the region. During the course of the audits she discovered that Mr. Brent Allen, a director of Great Gold Limited, was also a director of Big Machine Limited. GGL is leasing a significant percentage of their machinery from BML. There are a couple of other machinery suppliers in the region who only supply GGL with a small proportion of their machinery needs. The question that worries Janelle is whether GGL are leasing from BML because Brent Allen has directed them to in order to increase BML’s profits. She thinks that this may be unethical.

Required:

Using the American Accounting Association (AAA) ethical decision model and relevant ethics standards to recommend a course of action for Janelle.