1.

ETHICAL ISSUE:
Is it still ethical for Frank to stay quiet for the non-compliance of the Machine International to the
Securities and Exchange Commission policies?

2. WHO IS AFFECTED AND HOW IS EACH AFFECTED?

WHO HOW AFFECTED?

Frank Being ask to stay quiet or to use the method which is

not applicable to the company
Performance evaluations may be affected
Relationship to the partner may be affected
Attitude about the company may be affected
They may lose their biggest clients if he will disclose
the violated rulings that the company committed
Being ask to also violate the rules of Securities and
Exchange Commission

Frank’s Partner She might lose her job once their clients notice that
they are using the wrong method
Her INTEGRITY, COMPETENCE and CREDIBILITY of her
work will be questioned after noticing the wrongful
method that they are still trying to use.
Misstatements of her work will arise that can lead to
the wrong audit or audit risk because of the wrong
method that she is using.

Machine International The credibility of their company will be questioned

They will lose their biggest client
They will face legal consequences for the non-
compliance of their company to the rules of SEC

3. FRANKS AVAILABLE ALTERNATIVES
Inform the Machine International that they are
violating the new rule of SEC about the method that
they are using in the current year and as an auditor
you will disclose it.
As an auditor who has an integrity and competent, he
will disclose the wrongful method which is the
 revenue recognition the “bill and hold” that the
company is using to his reports to avoid legal
consequences in the future.

4. CONSEQUENCES OF EACH If the company of Machine International notices this

ALTERNATIVE violation that the company is still doing, they may
choose between: continuing the use of the revenue
recognition that will make their biggest clients stay or
state the truth, admit the wrongful deeds that the
company committed and re-image the company, by
rebuilding trust of the future clients of the country.
If the auditor complies to the of code of ethics and
discloses the wrong method which is the revenue
recognition “bill and hold’’ to his reports which is the
truth he will still be a credible auditor who has so
much integrity. On the other hand, if he will pursue
that, the company will lose their prestigious clients
and most of the company’s staff will get mad at him
because of what he has done, which can lead to the
unemployment of the lower other staff of the
company.

5. APPROPRIATE ACTION
Frank should disagree and state the truth to his
reports regarding the wrongful method that the
company using. This is the best option that he can do,
it will be ethical for him to write and pass an honest
report and the company will also be benefited by this
truthful confession. This will maintain the integrity of
Frank and the company will face, less consequence
when legal dispute arises. It will always be better to
correct the wrongdoings at the early stage before it
worsens.