To Tell or Not to Tell: An Auditing Case in Ethical Decision Making and Conflict Resolution
Keim, Mary Thomas, Grant, C. Terry, Issues in Accounting Education
ABSTRACT: This case requires you to resolve a fictitious yet realistic ethical dilemma as you assume the role of audit manager in a large, national CPA firm. You will be presented with a scenario whereby you learn from the CFO of Bell Manufacturing, an audit client, that the CFO entered the United States and worked a number of years under false pretenses for the audit client while he was an illegal alien. Although the CFO recently obtained U.S. citizenship, subsequent audit work revealed that Bell Manufacturing failed to obtain the documents required under federal law to certify his eligibility for employment. Before addressing specific case requirements, you will be introduced to a primer on professionalism and ethical decision making in an audit environment. Case requirements first ask you to establish a baseline position by outlining your initial reaction regarding the impact of this information on your auditor responsibilities. You will then be asked to electronically search the authoritative literature covering illegal acts by a client, as well as standards on fraud and the Code of Professional Conduct. After researching the issue, you will be asked to write a memo to the audit partner detailing your recommendation for resolution of this issue. Completion of this case will contribute to development of your ethical, analytical, research, and communication skills, better preparing you for practice and the new CPA exam.
Bell Manufacturing, Inc. is a publicly traded company that produces consumer goods for sale, primarily to wholesalers. The company hired your accounting firm, Hogue & Company, more than three years ago under both auditing and consulting engagements to assist with its initial public offering of common stock under the 1933 Securities Act. Hogue & Company is among the 12 largest accounting firms in the United States. It has developed a respectable reputation regarding its ability to help growing companies go public. You are currently an audit manager for Hogue & Company, having been promoted to this position from senior auditor in the last year, due in large part to your successful handling of the Bell Manufacturing account.
You have just returned from lunch with Jay Hoffman, the new chief financial officer (CFO) for Bell Manufacturing, Inc. The purpose of the meeting was to congratulate Hoffman on his recent promotion. You have known Hoffman since you were assigned to this engagement, during which time he has progressed from accounting manager to chief accountant and now to his current position. When you expressed how pleased you were about his promotion, Hoffman explained how proud he was of the accomplishments he has achieved since entering the country as an illegal alien. He then told you that he entered the U.S. illegally because, at the time, that was the only way he could get into this country. He was quick to explain that he has been a U.S. citizen for almost three years and asked that you keep this in confidence.
In connection with your audit of executive payroll, you pulled Hoffman's personnel file, along with those of all senior executives of Bell. After the lunch meeting with Hoffman, you reviewed the contents of his personnel file. As required by federal law, a Form I-9, Employment Eligibility Verification, from the U.S. Immigration and Naturalization Service, was included in his personnel record. Hoffman completed and signed the form in 1992 at the commencement of his initial employment with Bell Manufacturing. He checked the box indicating he was a citizen of the United States and signed the form, attesting under the penalty of perjury that he had made no false statements or used false documents in connection with the completion of the form. Hoffman's I-9 Form, along with the official instructions for completion, is presented as Attachment 1.
Since 1986, federal law has required all newly hired employees (citizens and noncitizens) to complete and sign Section 1 of Form I-9. …