Syson, Debbie Alyanna Steven L.

Jager, CPA
Ethics in Accounting
“Regas and Giles”
I. FACTS

Ed Giles, 35 and Susan Regas, 25 are both working in the same CPA firm, Saduga and
Mihca. Ed is a partner and Susan is a senior accountant. It is but a fact that the two have been
dating for about four months by now, amidst the HR’s rule that prohibits dating between two
people of different ranks. The two have kept their relationship as discreet as possible as it
would cause either one of them to give up their job in the firm if their relationship happens to
lead to marriage. As time went by, the couple’s relationship started to get more obvious among
the junior staff members. This knowledge was however not oblivious to the partners, which
leads us to the reason why both were assigned to work on the same audit engagement with
CAA Industries for the second year around.
Revilo, Regas’ friend, advised her to end her relationship as it may cause her her future.
Regas then, confronted Giles and told him that they put their relationship aside first until they
finish their audit engagement. Giles, although hesitant at first, ended up asking Regas to have
dinner with him on that night as a way to say “farewell”.
That night, as fate may have decided, they were unfortunately spotted in the restaurant
by CAA Industries’ controller, Mark Sax. This caused him to cast doubts and anxiety as to the
validity and quality of the audit fees imposed unto him, as well as the efficiency of the audit
process. On the following business day, he reported to Herb Morris, the managing partner of
the accounting firm about what he saw and expressed his dismay on the possible effects of the
couple’s relationship on the audit process. Morris promised to confront Giles about the issue
and update him by the end of the week.

II. ISSUE

Amidst the various ethical issues that were violated such as integrity, conflict of interest,
responsibility, etc., the main issue at hand is whether two members of the same firm holding
different ranks should be allowed to date.

III. STAKEHOLDERS

Saduga and Mihca – As an accounting firm, it should strictly implement and conform to the
proper rules and regulations of authorities such as the AICPA code of professional conduct. It is
in this way that they can uphold the public and their client’s trust. Professional care, due
competence and independence should at all times be maintained by all its staff members.
Ed Giles – As a partner, it is expected that he should take responsibility in his actions as he is a
person of superiority. That being the case, he sets the tone and serves as an example to his
subordinates in the firm.

Susan Regas – Although she is of a lower rank, her obligations and duties as accountant is the
same as any CPA. She should excude professionalism, responsibility and integrity in her acts.

Mark Sax – As the controller, he is to make sure that the audit is being performed accordingly
and efficiently as this will affect the financial information that he is to show to the public.

Colleagues – They should be responsible as well in maintaining the firm’s reputation and
integrity by reporting unethical acts to the appropriate seniors or managers. If the firm suffers a
stained reputation they will also be affected.

IV. ACCOUNTING ETHICAL STANDARDS

Due care – This obliges an auditor to keep up with the standards and expectations of what a
reasonably competent auditor should be. (AU 230)

Integrity – This obliges one to decide on what is right and what is just under any circumstance.
It doesn’t simply require one to be honest, but he has to demonstrate strong moral principles.

Objectivity and independence – This requires one to be impartial, free from conflict of interest
and intellectual honesty in his acts (ET 55). Independence covers both a person’s state of mind
and in physical.

Responsibility as professional – On top of everything, especially at the case at hand, I believe

this is the all- encompassing standard one should maintain. This means executing the due
professional conduct so as to effect a harmonious and sound relationships with stakeholders.

V. OPERATIONAL ISSUES

As mentioned, there is a weakness in the HR’s side of executing and implementing its
policies. What made it worse is that even a partner, who should actually be the first to comply
with the rules, disobeyed it. In addition to it, it was also mentioned that their client noticed that
his work was a bit off when he failed to answer promptly to the client’s follow-up. Susan
complements this fault as she was probably the one assigned to do the adjusting entries the
client was talking about. More than that, she has also been losing focus and struggling in
accomplishing the tasks assigned to her. By default, their relationship does affect the audit
process and quality. If Morris would just let this pass, it will be another defect in the operations.
The rest of the company might even use the case of Giles and Regas in rationalizing and
justifying themselves if they happen to get involved in such relationship.
 VI. ACCOUNTING, AUDITING ISSUES

The case had more auditing issues at hand. Clearly, the couple failed to exercise the ethical
standards required from them such as integrity, public interest and due care. Their work was
affected as they were both distracted. They lacked in integrity for even if they know that it is
not right and it is against their company’s law, they still are into the relationship. This also has
caused inappropriate charging of hours worked to their client. The hours billed didn’t actually
reflect the time worked, as it was mentioned that in one instance that they arrived back three
hours later in the office. They should’ve been accountable to this.

VII. ALTERNATIVES
A. Terminate both parties.
B. Sanction both parties.

VIII. COMPARE AND WEIGH ALTERNATIVES

ALTERNATIVE A
Is it LEGAL? Yes, they violated company
policies and caused the firm a
stain in its reputation. This is a
legal ground for termination.
Professional standard As metioned earlier, they
both violated certain
standards in the COE (i.e.
integrity, due care, public
interest)
Rights theory As far as it is legal, I would
consider it right. Although it is
more of a cruelly right thing
to do
Egoism Egoism doesn’t play much of a
fact in this decision, as when
he fires both, the burden will
shift unto him. Although it
may benefit him in a way that
he may be perceived as a
strict leader of the company,
he may gain respect from the
fellow staff.
Utilitarianism In the long run, the firm will
develop a stringent
environment when it comes
ALTERNATIVE B
Yes, it is proper that anyone
gets the consequences of his
actions.
Same with alternative A
Yes, it is right that people get
the consequences of their
action.
On the other hand, this
alternative may make him
look greedy for retaining
Giles, as we all know that
Giles is a big revenue maker in
the company. It may seem
that he is greedy for Giles’
expertise.
Since Giles is an excellent
partner technically, if he
remains in the company, then
 to following the law. This will
result to a law abiding culture
within the company.
Justice theory Although immediate
termination isn’t quite
justifiable, this alternative
could discipline the rest of the
company in the long run.
Virtue Firing both parties
immediately may violate
justice for both in one way or
another. I don’t think this
alternative is virtuous.
the company will regain or
retain the profits generated
by Giles. In turn, the majority
will benefit from this.
Giving them proper sanction
is totally justifiable. They
violated rules; therefore they
should get what they deserve.
This decision could be
considered virtuous as it is a
way of helping both of them
retain their job in the
company. This alternative is
some sort of a way of giving
both parties a second chance.

IX. RECOMMENDATION

Morris, as the managing partner, should consider and weigh all the costs and benefits of his
possible actions on this. While considering that, he should as well know his priorities, it is in this
way that he could decide easier. However so, as the AICPA code of ethics states, public interest
should be a top priority. By this I would recommend that he re-align and regain the original
competent Giles. I would say that it may not be the couple’s fault for falling in love but the
problem here is that they forgot their responsibilities. In this case, I would re-train Giles as he is
an asset to the company. Losing him may as well cost the company its top clients; this might
eventually cost the rest of the staff members their jobs as the firm might just go down
(Utilitarian). More than that, I would suggest that he ensures that the sanction will be heavy yet
justifiable as to not violate Giles’ rights too. Maybe a demotion or a decrease in compensation
or assignment of lesser important clients to him may be effective. In this way, he can be
motivated to prove himself again to get back up and regain his benefits and pride in the
company. For Regas, a demotion would be easy, but if I were her, I would just resign and
transfer to another audit/accounting firm. She’s still young and the world still has a lot of room
for her. More than that, she/they can actually retain their relationship in this way. On the
farther side, if Giles and Regas simply love each other more than anything and marriage is
highly probable, then I would suggest that they both resign and put up their own business. If
this happens, although the disadvantages of losing Giles as mentioned above, the firm can start
anew. It would be costly to reassign engagements, but in time, people will eventually learn the
lesson, and the company as stated in section VIII, will develop a more obedient culture. This
definitely will benefit the majority as well (Utilitarianism).
 X. QUESTIONS

1. Basically, they breached their trustworthiness and responsibility in their acts.

Trustworthiness is for the fact that they hid their relationship with full intent to avoid sanctions
or consequences. Moreover, it wasn’t just the firm that they jeopardized, but as well as their
client, who believed in them for years by now in conducting their audit. Responsibility comes
with the fact that they started to neglect the tasks they’re supposed to do. The issue could’ve
been mitigated if they at least helped each other finish the audit efficiently and responsibly. For
me, Giles as the partner is more to blame. As a partner, like I said, he could’ve helped Regas to
finish her work even faster, but he didn’t. As a partner, much is expected from him as well as he
is a person of superiority. Regas, although has less responsibility, is just as accountable for her
acts as well.

2. Giles to Morris, “ Hi Morris, I am sincerely sorry for disappointing you with what
happened. I know I was wrong and I neglected my duty to you as your audit partner. I hope you
understand and I promise that we will finish our engagement cleanly and effectively. I had
always loved working in this firm and I’d be more than glad if you could give me a chance to
amend what I have done. I will ask Regas to transfer to another firm and on my part, I will
accept the due consequences of my acts. I truly love her and I just can’t cut my ties with her. I’d
highly appreciate your kind consideration on this. Rest assured that this will never happen
again.” It is in this way, that he can pacify and prove to Morris that he is willing to rectify the
wrong things he has done.

3. First, I will approach him in a professional manner. Being the biggest “rainmaker”
doesn’t mean that he is superior to the rules of the company nor the rules of being a CPA. By
that, I would make him feel and realize that his act didn’t do much good on his part and may
actually ruin his record not only in the company but as well as to the clients who believe in him.
I will still allow them to finish the audit engagement as we are two weeks from the end of it, I
don’t think it is practical to actually change the team by that time. However, I will get involved
with the remaining two weeks in the processing of the engagement with the closest scrutiny I
can. It is I think the best way possible to complete the audit properly and cost effectively. After
this engagement, it is the time to give both parties the proper sanctions to their acts
(alternative B).