Group Number 8
Jennifer Chan
Michael English
Jesse Lee
Nick Rosas
Chelsea Underhill
Case 7
Evaluating an Ethical Dilemma:
Ethics and Auditor Responsibilities
A key factor that an auditor provides is
independence. The AICPA Code of
Professional Conduct states that “a
member in public should be
independent in fact and appearance
when providing auditing and other
attestation services.”
The AICPA Code of
Professional Conduct
“The American Institute of Certified Public
Accountants is the national, professional organization for
all Certified Public Accountants. Its mission is to provide
members with the resources, information, and leadership
that enable them to provide valuable services in the
highest professional manner to benefit the public as well
as employers and clients.
In fulfilling its mission, the AICPA works with state
CPA organizations and gives priority to those areas
where public reliance on CPA skills is most significant.”
- http://www.aicpa.org/About+the+AICPA/AICPA+Mission/
1. Jack Jones is a partner with a large audit firm
and is assigned to the Ford audit. Jack owns 10
shares of the Ford.
As an auditor, Jack is responsible for examining
the financial reports to ensure that Ford represent
what they claim and confirm generally accepted
accounting principles. Even though he owns
shares from the company, he is still compromising
his independence with the company. He can lie or
change the financial reports, therefore earning
more than what he should be getting.
2. Jane Winkler has invested in a mutual fund
company that owns 500,000
shares of Sears stocks. She is
the auditor of Sears.
As an auditor Jane examines the financial reports of
Sears to ensure that they represent what Sears claim
and conform with the GAAP. (Generally Accepted
Accounting Principles) By investing in a mutual fund
that has a large chunk of Sears stock Jane is
compromising her independence with the company.
When checking Sears’s financial records she could
possibly alter or lie about her findings in her report so
she can indirectly earn more money through her
mutual fund.
3. Bob Franklin is a clerk/typist who works on
the audit of AT&T. He has just inherited 50,000
shares of AT&T stock. (Bob enjoys his work and
plans to continue despite his new wealth.)
There is a lack of independence due to the
fact that Bob inherited a large share of
stock from AT&T. He can no longer audit
for the company because he is
compromising his independence with the
company. He could alter the financial
records which would increase his earnings,
more than his share.
4. Nancy Sodoma worked on weekends as the
controller for a small business that a friend
started. Nancy quit the job in midyear and now
has no association with the company. She works
full-time for a large CPA firm and has been
assigned to do the audit of her friend’s business.
Nancy…the CPA

Nancy's relationship with the company's
entrepreneur suggests lack of independence. On
one level, Nancy's integrity could be compromised
as a favor to a friend. As big boss, Nancy's friend
would have much incentive, and conceivably ample
means to coax favorable audit results from
Nancy. Furthermore, her former employment for
this company brings her ties to it even closer. Her
position as controller could very well have produced
friendship with other accountants or bookkeepers at
her friend's business. The fact that her position at
this business was finance-related would severely
diminish any credibility she would aspire for now as
this company's hired "independent" auditor. Both
Nancy's personal and professional ties to this
company should disqualify her eligibility as an
auditor for this company.
5. Mark Jacobs borrowed $100,000 for a home
mortgage from First City National Bank. The
mortgage was granted on normal credit terms.
Mark is the partner in charge of the First City
Audit.
Mark Jacobs is compromising
his independence with First
City National Bank because
he has a liability with the
mortgage company. He owes
them 100,000 dollars and it
would be unethical for him to
conduct an audit on a
company that he does
personal business with.
PowerPoint presented
by:
GROUP 8
Michael English
Jennifer Chan
Jesse Lee
Chelsea Underhill
Nick Rosas