CASE REPORT – DILEMMA OF ACCOUNTANT

(HARVARD BUSINESS SCHOOL)

REPORT PREPARED BY: -

AASHUTOSH KUMAR
SONI SINGH
VIBHU MISHRA
AMAN KUMAR
Introduction
The Metcalf Report was a critical report on the U.S. accounting profession and the influence of the “Big 8”
accounting firms, released in 1976 by Senator Metcalf, who had chaired a U.S. Senate committee examined
the accounting industry.
Key takeaways from the Metcalf Report
 Among the Metcalf Report's findings was that accounting oversight and auditing standards were
inadequate in the accounting industry.
 The Metcalf Report recommended that the federal government establish and monitor auditing
standards for accounting firms.
 The Metcalf Report also recommended that securities laws should restore the right of individuals to
sue accounting firms for negligence.
The case talks about a situation how necessary the above things are by taking an example from the industry.
Although the case revolves around an accounting problem but the actual problem that the protagonist Daniel
Porter faced while working with Baker Greenleaf under the guidance of Oliver Freeman, faced more of an
ethical dilemma and corporate ethics. He was asked to manipulate reports of a very important client of the
company, which he was not able to execute owing to his protestant work ethic and his upbringing as a man
who had a strong faith on his own-worth and responsibility.
This is a case of corporate governance gone wrong. The client as well as the accounting-cum-audit
firm seem intent on a coverup operation, which not only violates ethical standards but can land Baker
Greenleaf into disrepute along with damages (legal).

Dilemma
Daniel Potter, a young trainee of Acorn Business School working with Baker Greenleaf, one of the Big 8
Accounting firms in the US faced a problem while working for a high value client. Dan was a man of ethics
and kept his professional standards aligned with his work.
Dan was assigned a high-profile real estate client to work for on behalf Greenleaf. He was given Gene
Doherty, as a subordinate to work with him in the same project.

As the brilliant young man Dan was, he completed the report files three days prior to the audit and presented
it to his boss Oliver Freeman. In the report he was able to solve every accounting problem that was present
in the client’s file except one. One of the client’s property was valued at $2 million but according to Dan, the
valuation should not have been more than $100,000 as it was a rundown property in an undesirable
neighbourhood, so he suggested a write down of $1,900,000 to the Sub’s Managers but the managers
refused as they were in the opinion of renting the property very soon.
After this the conversation with the client has stopped and the final call was left with Dan and his actions
were ambiguous as according to AICPA (American Institute of Certified Public Accountants) regulations on
materiality , any difference in opinion between the client and the public accountant which affected the
income statement by more than 3% was considered material and had to be disclosed in the CPA’s
opinion .Thus the $1.9 million write down would have been a 7% impact on the Sub’s net income , but less
than 1% on the client’s consolidated net income.
Dan’s Report
After much consideration, Dan submitted the report to his boss, where he suggested a write down of $1.9
million. Upon reading the report, Oliver fired a to do list to Dan which was a normal practice at Greenleaf
The to do list directed Dan to
 To take out the pages in the files where he estimated the value of the real estate property at $100,000.
 Put in an opinion that the estate properties were correctly evaluated by the Sub.
 Substitute the “subject-to-opinion’ to a “clen opinion”
Dan opposed the to do list as it was against his work ethics for which Oliver pointed out his views to dan
 Oliver wanted the audit to go smoothly
 Dan was responsible for a “clean opinion”
 Any negligence in his duty would be viewed as an act of irresponsibility
 The problem was not material to the client and the Sub’s opinion would only be used “in-house”
 Nobody cared about the financial statements
Dan understood the importance of this audit as well as he was aware of Oliver’s expertise in the field but he
knew that he needed to be loyal to Baker GreenLeaf
Later he came to know that Oliver has pulled out his report and substituted with a clean opinion as well as
he as given a negative evaluation on Dan’s performance on the project.
Suggested Solution
The overall financial dilemma had come down to be a classic case of violation of code of ethics and in front
of Dan he had the following alternative in front of him
 Write to senator Metcalf about the issue and make the same public.
 A watchdog agency to be set up to monitor such happenings (when upright accountants like Dan
voice their concerns) or the existing watchdog SEC may have to be given extra teeth.
 Proxy advisory forms have to be encouraged to bring out corporate governance issues and thus
influence shareholders to vote against the management of dishonest firms.
 Use of forensic accounting can be resorted to in order to decipher issues beyond normal accounting
and audit practices.

Conclusion

 In the US the Sarbanes-Oxley (SOX) Act 2002 exists to ensure good governance in listed companies
(also called Public Company Accounting Reform and Investor Protection Act). It is implemented by
SEC.
 In India listed companies have to follow Clause 49 of SEBIs guidelines (which was passed in Dec
2004) along with the Companies Act 2013 regarding good governance practices.
In the UK it is the Sir Adrian Cadbury Report 1992 titled Financial Aspects of Corporate
Governance that addresses these issues.

_______________________________________________________________________________________