Question;Review the case studies below in the textbook. Prepare a one-page report for each of the following case studies:Case Study: Locker Room Talk, pg. 410Case Study: Opinion Shopping, pg. 421Case Study: Tax Return Complications, pg. 426Ethics Case: Locker Room TalkAlbert Gable is a partner in a CPA firm located in a small midwestern city, which has a population of approximately 65,000. Mr. Gable?s practice is primarily in the area of personal financial planning, however, he also performs an annual audit on the city?s largest bank.Recently, Mr. Gable was engaged by Larry and Susan Wilson to prepare a comprehensive personal financial plan. While preparing the plan, Mr. Gable became personal friends of the Wilsons. They confided to him that they have had a somewhat rocky marriage and, on several occasions, seriously discussed divorce. Preparation of the comprehensive personal financial plan, which is nearing completion, has taken six months. During this period, Mr. Gable also performed the annual audit for the bank.The audit test sample selected at random from the bank?s loan file included the personal loan files of Larry and Susan Wilson. Because certain information in the loan files did not agree with facts personally known to Mr. Gable, he became somewhat concerned. Although he did not disclose his client relationship with the Wilsons, he did discuss their loan in detail with a loan officer. The loan officer is very familiar with the situation because he and Larry Wilson were college classmates, and now they play golf together weekly.The loan officer mentioned to Mr. Gable that he believed Larry Wilson was ?setting his wife up for a divorce.? In other words, he was arranging his business affairs over a period of time so that he would be able to ?leave his wife penniless.? The loan officer indicated that this was just ?locker room talk? and that Mr. Gable should keep it confidential.Mr. Gable?s compensation from his firm is based upon annual billings for services. If Mr. Gable resigns as CPA for the Wilsons, it would result in his losing a bonus constituting a substantial amount in annual personal compensation. Mr. Gable is counting on the bonus to contribute to support tuition and expenses for his youngest daughter, who will be starting as a freshman in college next fall.Questions1. What are the ethical issues?2. What should Albert Gable do? (Brooks 410-411)Brooks, Leonard J., Paul Dunn. Business & Professional Ethics for Directors, Executives & Accountants, 5th Edition. Cengage Learning, 03/2009. VitalBook file.The citation provided is a guideline. Please check each citation for accuracy before use.Ethics Case: Opinion Shopping?We have had Paige & Gentry as our auditors for many years, haven?t we, Jane? They have been here since I became president two years ago.??Yes, Bob, I have been the Chief Financial Officer for seven years, and they were here before I came. Why do you ask???Well, they were really tough on us during the recent discussions when we were finalizing our year-end audited statements?not at all like I was used to at my last company. When we asked for a little latitude, our auditors were usually pretty obliging. Frankly, I?m a little worried.??Why, Bob, we had nothing to hide???That?s true, Jane, but let?s look ahead. We?re going to have difficulty making our forecast this year, and our bonuses are on the line. Remember, we renegotiated our salary/bonus package to give us a chance at higher incentives, and we have to be careful.??Looking ahead, we?ve got a problem with obsolete inventory that?s sure to come to require discussion for a second year in a row. We?ve got the warranty problem with the electrical harness on mid-range machine which is going to cost us a bundle, but we want to spread the impact over the next three years when the customers discover the problem and we have to fix it up. And don?t forget the contaminated waste spill we just had?how much is that going to cost to clean up, if we ever get caught???These are potentially big ticket items. Bill Paige, the guy who is in charge of our audit, is not going to let these go by. He said the inventory problem was almost material this year and we had to argue really hard. You are a qualified accountant, how can we handle this???Well, Bob, we could have some informal discussions with other auditors?maybe even the ones at your old company?to see how they would handle issues like these. The word will get around to Bill and he may be more accommodating in the future, and will probably shave his proposed audit fee for next year when he meets with our Audit Committee next month. If you really wanted to play hardball, we could talk the Audit Committee into calling for tenders from new auditors. After all this time, it?s logical to check out the market, anyway. We would have advance discussions during which we would sound them out on how they would assess materiality in our company?s case. Our audit fee is getting pretty large?almost $50,000 this year?so some big firms will be really interested.??Jane, let?s play hardball. Get a list of audit firms together for the tender process, and I will approach the Audit Committee. Be sure to list some small firms, including Webster & Co., the firm auditing my old company.?Questions1. Who are the major stakeholders involved in this situation?2. What are the ethical issues involved?3. Is this situation unethical? Why and why not?4. What should Jane do if Webster & Co. looks like the choice the Audit Committee will make and recommend to the board of directors? (Brooks 421-422)Brooks, Leonard J., Paul Dunn. Business & Professional Ethics for Directors, Executives & Accountants, 5th Edition. Cengage Learning, 03/2009. VitalBook file.The citation provided is a guideline. Please check each citation for accuracy before use.Ethics Case: Tax Return ComplicationsAs Bill Adams packed his briefcase on Friday, March 15, he could never remember being so glad to see a week end. As a senior tax manager with a major accounting firm, Hay & Hay, on the fast track for partnership, he was worried that the events of the week could prove to be detrimental to his career.Six months ago, the senior partners had rewarded Bill by asking him to be the tax manager on Zentor Inc., a very important client of the firm in terms of both prestige and fees. Bill had worked hard since then insuring his client received impeccable service and he had managed to build a good working relationship with Dan, the Chief Executive Officer of Zentor Inc. In fact, Dan was so impressed with Bill that he recommended him to his brother, Dr. Rim, a general medical practitioner. As a favor to Dan, Bill agreed that Hay & Hay would prepare Dr. Rim?s tax return.This week a junior tax person had prepared Dr. Rim?s tax return. When it came across Bill?s desk for review today, he was surprised to find that, although Dr. Rim?s gross billings were $480,000, his net income for tax purposes from his medical practice was only $27,000. He discussed this with the tax junior, who said he had noted this also but was not concerned, as every tax return prepared by the firm is stamped with the disclaimer ?We have prepared the return from information provided to us by the client. We have not audited or otherwise attempted to verify its accuracy.?On closer review, Bill discovered that the following items, among others, had been deducted by Dr. Rim in arriving at net income:a. $15,000 for meals and entertainment. Bill felt that this was excessive and probably had not been incurred to earn income, given the nature of Dr. Rim?s practice.b. Dry-cleaning bills for shirts, suits, dresses, sweaters, etc. Bill believed these to be family dry-cleaning bills that were being paid by the practice.c. Wages of $100 per week paid to Dr. Rim?s twelve-year-old son.Bill telephoned Dr. Rim and had his suspicions confirmed. When Bill asked Dr. Rim to review the expenses and remove all that were personal, Dr. Rim became very defensive. He told Bill that he had been deducting these items for years and his previous accountant had not objected. In fact, it was his previous accountant who had suggested he pay his son a salary as an income-splitting measure. The telephone conversation ended abruptly when Dr. Rim was paged for an emergency, but not before he threatened to inform his brother that the accounting firm he thought so highly of was behind the times on the latest tax planning techniques.Bill was annoyed with himself for having agreed to prepare Dr. Rim?s tax return in the first place. He was afraid of pushing Dr. Rim too far and losing Zentor Inc. as a client as a result. He could not anticipate what Dan?s reaction to the situation would be. Bill was glad to have the weekend to think this over.Just as Bill was leaving the office, the tax senior on the Zentor Inc. account informed him that the deadline had been missed for objecting to a reassessment, requiring Zentor Inc. to pay an additional $1,200,000 in taxes. The deadline was Wednesday, March 13. The senior said he was able to contact a friend of his at the Tax Department, and the friend had agreed that if the Notice of Objection was dated March 13, properly signed, and appeared on his desk Monday, March 18, he would process it. Bill left his office with some major decisions to make over the weekend.Questions1. Identify the ethical issues Bill Adams should address.2. What would you do about these issues if you were Bill? (Brooks 426-427)Brooks, Leonard J., Paul Dunn. Business & Professional Ethics for Directors, Executives & Accountants, 5th Edition. Cengage Learning, 03/2009. VitalBook file.The citation provided is a guideline. Please check each citation for accuracy before use.
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