FORUM DISKUSI 13
DARI BROOKS
OPINION SHOPPING
“We have had Paige & Gentry as our auditors for many years, haven’t we, John? 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 before I
came. Why do you ask? ”
“Well, they were really tough on us during the recent dicussions, when we were finalizing our
year-end audited statement—not at all like I was used to at my last company. When we
asked for a little attitude, our auditors were usually pretty obligating. Frankly, I’m a little
worried.”
“Why, Bob, we had nothing to hide?”
“That’s true, John but let’s look ahead. We’re going to have a difficulty making our forecast
this year, and our bonuses are on the line. Remember, we negotiated 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 require
discussion for a second year in a row. We’ve got the warranty problem with the electrical
harness, on mid-range machines 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. Tell me how we can 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 issue like these. The word will get
back to Bill: he may be accomodating in the future and will probably shave his proposed
audit fee for next year when he meets 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 out the prospective auditors on how they would
assess materiality in our company’s case. Our Audit Fee in getting pretty large – almost
$50,000 this year – so some big firms will be really interested”
“John, let’s paly hardball. Get a list of audit firm 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.”
Questions
1. 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 John do if Webster & Co.looks like the choice the Audit Committee will
make and recommed to the Board of Directors?