THE AUDIT CASE Formatted: Centered

SYNOPSIS OF THE CASE

The Audit is set in a national CPA firm. Sue, a newly hired auditor, has been sent out on an audit where she
discovers that the client has been treating many its workers as independent contractors. This practice saves
the client the payroll taxes that would otherwise be due. In Sue’s professional judgment, this may be
improper and should be further investigated to see whether it should be noted in the audit report. A
conversation with her immediate supervisor gives her no help. Co-workers put pressure on Sue to drop the
matter. If she goes over the head of the partner in charge of the audit, she will get them all in trouble as they
have ignored the practice in prior years’ audits. They say that while they realize that it was probably wrong,
they are sure their supervisor wants them to ignore it again this year. They encourage her to be a team
player. Clearly, Sue faces a problem. If she drops the issue she will be violating her professional code of
ethics. On the other hand, if she continues with the matter, she may well risk her future with the firm.
PROBLEM FACE BY SUE
In the Audit Sue faces the chance of adverse impacts on the job if she continues to call objections to the
client’s practice. She also faces the possibility of even more plain adverse professional consequences if she
fails to object and if she is later accused of violating the profession’s code of ethics in having failed to
pursue the matter further. Indeed, an auditor who has reason to suspect improper accounting practices has
an obligation to further investigate the questionable practice. Failure to do so could result in a violation of
generally accepted auditing standards as well as the presentation of financial statements that are not in
accordance with generally accepted accounting principles. Sue is in a difficult position, one with far-
reaching consequences. To make it worse, she is feeling a great deal of pressure to do nothing, and the
others involved are presenting what seems to be quite a few arguments supporting their position.
PROBLEM FACE BY CO WORKER
Sue’s co-workers, Bill and Mike, they pointed out that the practice had been ignored in the past. If Sue were
to follow through, her co-worker’s careers would be risked. Furthermore, her relationship with her superiors
would be so threatened, it could possibly force her to leave the firm.
ARGUMENT
The issue is related to personal integrity. The very first thing which come in our mind is “what is personal
integrity?” The answer is very simple “One meaning is that you act congruently with our values, tell the
truth as you see it”. In my point of view Sue must tell higher authority about truth and I am sure they will
take the action against the people which are involved in that illegal activity.
Another issue is related to loyalty to the organization. In my experience at this point questions of loyalty to
the organization unavoidably come up. It is possible to introduce the view that "loyalty" is a two-way street
and requires a certain level of trust, integrity, and reciprocity. The issue of organizational culture also should
be introduced. Organizations can either encourage the moral “high road” from the top down or discourage
compliance with company policies and community or professional standards. This may be done either by
tacitly approving of actions which generate revenues but do not place the organization in danger, or by
actively encouraging disregard for those same standards. It may be argued that an organization gets the
moral climate it deserves.