Due to economic downturn George & Sheila were laid-off by a larger audit firm in Sydney. They decided to establish a new audit firm and were able to attract a few clients in the first year. They coaxed a senior audit manager Joyce CPA of the larger firm to join them with a view to securing her old clients from the larger audit firm. Joyce was promised partnership within three (3) years as an inducement.
A prospective client well known to Joyce from the construction industry has decided to re-bid for audit services due to dissatisfaction with the larger audit firm for some audit issues with accounting treatment and recognition of profits on uncompleted projects in the previous year. The audit issues was not probed further by Joyce as she saw it as an opportunity to receive credit by bringing in more audit work and potentially some accounting related services from this client. They also require some advisory assistance from professional accountants for preparing profit and cash-flow projections for existing and potential projects.
Joyce proceeds to prepare a draft proposal for the client fully aware of the Construction Industry Report prepared by her previous firm advising clients to abide with conservative estimates of profit recognition from uncompleted development projects due to the risks of economic down-turn.
Many contractors are beset by construction delays, late collection of contract payments and disputed contract work variation claims caused by the economic downturn. She is aware that the client intends to apply for a bank loan for US$5.0 Million and requires unqualified audit reports with good financials to secure credit facilities.
She submits the draft proposal to George & Sheila and it is duly approved. They commend her on the excellent proposal which will earn the firm extra $200,000 in fee revenues if accepted by the client.
1. Answer the following questions, i.e. (a) to (d) inclusive, based on the Case Study presented above on page 2.
(a) Identify the main ethical issues relevant to this case.
(b) Discuss the main ethical issues in the case with regard to the various stake-holders of this case (give reasons).
(c) Using an appropriate ethical framework, perform an analysis of Joyce's behavior demonstrated by the facts presented in this case.
(d) Evaluate the consequences of a range of actions that Joyce could choose ( e.g. say nothing to George and Sheila or tell George and Shelia)
(e) With reference to an appropriate Code of Ethics (e.g. Accounting Professional and Ethical Standards Board (APESB) ), an ethical framework/model and/or other relevant references, make appropriate recommendations to Joyce to encourage corporate socially responsible behavior.