Research Triangle Software Innovations is a software solutions company specializing in enterprise resource planning (ERP) business management software. Located in the Research Triangle Park, North Carolina, high-tech area, Research Triangle Software Innovations is a leader in ERP software. Oak Manufacturing is located in Raleigh, North Carolina. Oak is a publicly owned company that produces oak barrels for flavoring and storage of wine products. As the largest company of its kind in the Southeast, Oak Manufacturing serves all 50 states and other parts of North America. Tar & Heel, LLP, is a mid-sized professional services firm in Durham, North Carolina. It provides audit, assurance, and advisory services to clients, many of whom are in the Research Triangle area. The firm audits the financial statements of Oak Manufacturing and was just contacted by the client to assist in selecting and implementing an ERP system so the company can improve its collection, storage, management, and interpretation of data from a variety of business activities. Steve Michaels is Tar & Heel’s advisory manager in charge of the Oak Manufacturing engagement. He is reviewing the criteria used for software selection as follows: • Alignment with client’s needs • Operations integration • Software reliability • Vendor support • Scalability for growth • Pricing Everything seems in order for the criteria. However, Steve is concerned about the selection of the ERP software of Research Triangle Software Innovations, for one, because Research Triangle is also an audit client of the firm. Given that Research Triangle is the major client in the Durham office, Steve worries about perceptions if the firm selects its client’s software product. Moreover, he knows his firm’s partnership is pushing for sales of its own software and this might be an occasion to do so. Steve calls Rosanne Field into his office to discuss her selection. This is Rosanne’s first job as the lead advisory staff member on a software selection decision. She has great credentials having graduated with a bachelor’s degree from the University of North Carolina, a masters from North Carolina State, and a computer science doctorate from Duke University. She has five years of experience in advisory services and has received glowing evaluations. Rosanne explains that there were four ERP software products that made it to the “final four.” From that list she paired down the selection to three packages—Research Triangle Software Innovations, Longhorn Software Systems in Austin, Texas, and Tar & Heel’s own product. Steve asks Rosanne to explain why Research Triangle Innovations was selected. She goes through the ranking of the criteria. It seems the firm’s total score was slightly below Research Triangle’s but higher than Longhorn Software’s. Steve asks Rosanne a few pointed questions about the selection process including: (1) Is she aware that Research Triangle is an audit client of the firm? (2) Did she consider management’s desire to push the firm’s own software? (3) Did she consider that the selection of the firm’s software would enable it to fine-tune the product with the experience and feedback from Oak Manufacturing and enhance future………………………………….. 1. What are the ethical issues in this case? Discuss the obligations of Tar & Heel to its stakeholders. 2. Characterize the kind of leadership demonstrated by Steve Michaels. 3. Evaluate moral intensity issues and how they might influence the actions and decisions of Rosanne. 4. Assume Rosanne decides to speak to her mentor. From past experience, she knows Vivian is a team player and has always encouraged Rosanne to do the same. Consider the following, if you were in Rosanne’s position, in developing a plan to give voice to your values. • What is at stake for the key parties, including those who disagree with you? • What are the likely objections or pushback from Vivian and others? • How will you counter those positions? Are there any levers you can use to influence those who disagree with you? • What is your most powerful and persuasive response to the reasons and rationalizations you need to address?
> Explain why moral problems may be of greater intensity than nonmoral problems.
> The following two statements about virtue were made by noted philosophers/writers: 1. MacIntyre, in his account of Aristotelian virtue, states that integrity is the one trait of character that encompasses all the others. How does integrity relate to, as
> Do you believe that a person’s stage of moral development and personal moral philosophy play a role in how values and actions are shaped in the workplace? Explain.
> Do you believe that our beliefs trigger our actions, or do we act and then justify our actions by changing our beliefs? Explain.
> We are citizens of the world. The tragedy of our times is that we do not know this. Woodrow T. Wilson (1856–1924), 28th president of the United States At five past midnight on December 3, 1984, 40 tons of the chemical methyl isocynate (MIC), a toxic gas,
> In 2005, Tony Menendez, a former Ernst & Young LLP auditor and Director of Technical Accounting and Research Training for Halliburton, blew the whistle on Halliburton’s accounting practices. The fight cost him nine years of his life. Just a few months la
> On September 25, 2012, Japanese camera and medical equipment maker Olympus Corporation and three of its former executives pleaded guilty to charges related to an accounting scheme and cover-up in one of Japan’s biggest corporate scandals. Olympus admitte
> Bennie Gordon graduated with a Masters in Accounting two years ago and now works as an accounting manager at the division level at Jet Energy Company, a company headquartered in Winston-Salem, North Carolina. Jet Energy is a regulated utility company by
> The facts of this case are from the Walmart shrinkage fraud discussed in an article in Nation on June 11, 2014. “Literary license” has been exercised for the purpose of emphasizing important issues related to organizational ethics at Walmart. Any resembl
> On October 15, 2009, in Fort Collins, Colorado, the parents of a six-year-old boy, Falcon Heene, claimed that he had floated away in a homemade helium balloon that was shaped to resemble a silver flying saucer. Some in the media referred to the incident
> Natalie got the call she had been waiting for over six long months. Her complaint to the human resources department of Franklin Industries had been dismissed. It was HR’s conclusion that she was not retaliated against for reporting an alleged embezzlemen
> United Thermostatic Controls is a publicly owned company that engages in the manufacturing and marketing of residential and commercial thermostats. The thermostats are used to regulate temperature in furnaces and refrigerators. United sells its product p
> Occupational fraud comes in many shapes and sizes. The fraud at Rite-Aid is one such case. On February 10, 2015, the U.S. Attorney’s Office for the Middle District of Pennsylvania announced that a former Rite Aid Vice President, Jay Findling, pleaded gui
> How could a CEO and chairperson of the board of directors of a major company resign in disgrace over a personal relationship with a contractor that led to a sexual harassment charge and involved a conflict of interests, a violation of the code of ethics?
> Reprinted with permission from “The Parable of the Sadhu,” by Bowen H. McCoy, Harvard Business Review. Copyright © Harvard Business Publishing. Last year, as the first participant in the new six-month sabbatical program that Morgan Stanley has adopted, I
> The story of Phar-Mor shows how quickly a company that built its earnings on fraudulent transactions can dissolve like an Alka-Seltzer. One day, Stan Cherelstein, the controller of Phar-Mor, discovered cabinets stuffed with held checks totaling $10 milli
> “I’m sorry, Lucy. That’s the way it is,” Ricardo said. The client wants it that way. “I just don’t know if I can go along with it, Ricardo,” Lucy replied. “I know. I agree with you. But, Juggyfroot is our biggest client, Lucy. They’ve warned us that they
> Milton Manufacturing Company produces a variety of textiles for distribution to wholesale manufacturers of clothing products. The company’s primary operations are located in Long Island City, New York, with branch factories and warehouses in several surr
> The facts of this case are fictional. Any resemblance to real persons, living or dead, is purely coincidental. Kenny is always looking to make contacts in the business world and enhance his networking experiences. He knows how important it is to drive c
> Troy just returned from a business trip for health-care administrators in Orlando. Kristen, a relatively new employee who reports to him, also attended the conference. They both work for Gateway Hospital, a for-profit hospital in the St. Louis area. The
> Assume you are interviewing for a position with an accounting firm and the recruiter asks you the following questions. Craft a response that you would feel comfortable giving for each one. • Describe an experience in the workplace when your attitudes an
> Jackson Daniels graduated from Lynchberg State College two years ago. Since graduating from college, he has worked in the accounting department of Lynchberg Manufacturing. Daniels was recently asked to prepare a sales budget for the year 2016. He conduct
> Brenda Sells sent the tax return that she prepared for the president of Purple Industries, Inc., Harry Kohn, to Vincent Dim, the manager of the tax department at her accounting firm. Dim asked Sells to come to his office at 9 a.m. on Friday, April 12, 20
> Gregory and Alex started a small business based on a secret-recipe salad dressing that got rave reviews. Gregory runs the business end and makes all final operational decisions. Alex runs the creative side of the business. Alex’s salad dressing was a jal
> The WorldCom fraud was the largest in U.S. history, surpassing even that of Enron. Beginning modestly during mid-year 1999 and continuing at an accelerated pace through May 2002, the company—under the direction of Bernie Ebbers, the CEO; Scott Sullivan,
> Barbara is working on the audit of a client with a group of five other staff-level employees. During the audit, Diane, a member of the group, points out that she identified a deficiency in the client’s inventory system that she did not discover during th
> Better Boston Beans is a coffee shop located in the Faneuil Hall Marketplace near the waterfront and Government Center in Boston. It specializes in exotic blends of coffee, including Sumatra Dark Roast Black, India Mysore “Gold Nuggets,” and Guatemala An
> Cleveland Custom Cabinets is a specialty cabinet manufacturer for high-end homes in the Cleveland Heights and Shaker Heights areas. The company manufactures cabinets built to the specifications of homeowners and employs 125 custom cabinetmakers and insta
> Shifty Industries is a small business that sells home beauty products in the San Luis Obispo, California, area. The company has experienced a cash crunch and is unable to pay its bills on a timely basis. A great deal of pressure exists to minimize cash o
> Kevin Lowe is depressed. He has been with the CPA firm Stooges LLP for only three months. Yet the partners in charge of the firm—Bo Chambers and his brother, Moe—have asked for a “sit-down.” Here’s how it goes: “Kevin, we asked to see you because your ti
> Gloria Hernandez is the controller of a public company. She just completed a meeting with her superior, John Harrison, who is the CFO of the company. Harrison tried to convince Hernandez to go along with his proposal to combine 12 expenditures for repair
> Sir Walter Scott (1771–1832), the Scottish novelist and poet, wrote: “Oh what a tangled web we weave, when first we practice to deceive.” Comment on what you think Scott meant by this phrase.
> Part A Billy Tushoes recently received an offer to join the accounting firm of Tick and Check LLP. Billy would prefer to work for Foot and Balance LLP but has not received an offer from the firm the day before he must decide whether to accept the positio
> Jose and Emily work as auditors for the state of Texas. They have been assigned to the audit of the Lone Star School District. There have been some problems with audit documentation for the travel and entertainment reimbursement claims of the manager of
> On December 3, 2012, a terrible incident occurred in the New York City subway when Ki-Suck Han was pushed off a subway platform by Naeem Davis. Han was hit and killed by the train, while observers did nothing other than snap photos on their cell phones a
> Ed Giles and Susan Regas have never been happier than during the past four months since they have been seeing each other. Giles is a 35-year-old CPA and a partner in the medium-sized accounting firm of Saduga & Mihca. Regas is a 25-year-old senior accoun
> Yes. Cheating occurs at the prestigious Harvard University. In 2012, Harvard forced dozens of students to leave in its largest cheating scandal in memory, but the institution would not address assertions that the blame rested partly with a professor and
> This case focuses on improper accounting and management decision making at Waste Management, Inc., during the period of its accounting fraud from 1992 to 1997, and the role and responsibilities of Arthur Andersen LLP (Andersen), the Waste Management audi
> Some of my management decisions turned wrong, but fraud? Never, never, never.” This statement was made by the former CEO of Vivendi Universal, Jean-Marie Messier, as he took the stand in November 20, 2009, for a civil class action lawsuit brought against
> HFS Incorporated (HFS) was principally a controller of franchise brand names in the hotel, real estate brokerage, and car rental businesses, including Avis, Ramada Inn, Days Inn, and Century 21. Comp-U-Card (CUC) was principally engaged in membership-bas
> South City Electronics is involved in printed circuit board assembly (PCBA) dealing with the assembly of complex electronic system processes. The electronics company, based in the city of South San Francisco, is publicly owned with three other locations
> The U.S. Court of Appeals for the Fourth Circuit affirmed the lower court ruling in the case Public Employees’ Retirement Association of Colorado; Generic Trading of Philadelphia, LLC v. Deloitte & Touche, LLP that Deloitte defendants lacked the necessar
> Assume that a corporate officer or other executive asks you, as the accountant for the company, to omit or leave out certain financial figures from the balance sheet that may paint the business in a bad light to the public and investors. Because the requ
> On July 24, 2009, the U.S. Court of Appeals for the District of Columbia upheld the finding of the SEC that Gregory M. Dearlove, a certified public accountant and formerly a partner with the accounting firm Deloitte & Touche LLP, engaged in improper prof
> Denise Norris is a manager at Fitch & Jones, LLP, a regional audit firm in Providence, Rhode Island. Norris is preparing for a meeting with Alan Morse, the controller of Rhody Electronics, a publicly held company in Providence. The meeting concerns a var
> On March 4, 2009, the SEC reached an agreement with Krispy Kreme Doughnuts, Inc., and issued a cease-and-desist order to settle charges that the company fraudulently inflated or otherwise misrepresented its earnings for the fourth quarter of its FY2003 a
> The artificial tax shelter arrangements developed by KPMG LLP for wealthy clients that led to the settlement of a legal action with the Department of Treasury and the Internal Revenue Service. On August 29, 2005, KPMG admitted to criminal wrongdoing and
> After the news broke about the frauds at Enron and WorldCom in the United States, there were those in Europe who used the occasion to beat the drum: “Our principles-based approach to accounting standard-setting is better than your rules-based approach.”
> It’s impossible! There is no justification for ignoring these entries.” These are the words spoken by Jackie Bauman at a meeting with the CFO of the company, Glen Donner. Cumberland Lumber is a regional company and privately owned by members of the Simon
> The North Face, Inc. (North Face) is an American outdoor product company specializing in outerwear, fleece, coats, shirts, footwear, and equipment such as backpacks, tents, and sleeping bags. North Face sells clothing and equipment lines catered toward w
> A member of the audit team of Ernst & Young in Canada became concerned about the accounting for inventory by its Canadian client, Sino-Forest, a Chinese company in the forestry business and headquartered in Ontario province. He sent an e-mail to the mana
> One of the earliest frauds during the late 1990s and early 2000s was at Sunbeam. The SEC alleged in its charges against Sunbeam that top management engaged in a scheme to fraudulently misrepresent Sunbeam’s operating results in connection with a purporte
> Do you think there are any circumstances when you should go outside the company to report financial wrongdoing? If so, to what person/organization would you go? Why? If not, why would you not take the information outside the company?
> It took a long time but the Securities and Exchange Commission finally acted and held auditors responsible for the fraud that occurred in banks during the financial recession. Surprisingly to some, the TierOne bank case explained below was the nation’s f
> Background For years, Dell’s seemingly magical power to squeeze efficiencies out of its supply chain and drive down costs made it a darling of the financial markets. Now we learn that the magic was at least partly the result of a huge financial illusion.
> It’s no fun accepting a position for your dream job and then red flags are raised that make you wonder about the culture of the company. Those are the thoughts of Donna Mason on January 18, 2016, as she prepares for a meeting with her accounting supervis
> Back on January 16, 2003, after more than 23 years, General Electric (GE) Co. decided to dump its well-recognized slogan, “We Bring Good Things to Life,” and decided to spend more than $100 million to launch a new campaign with the tagline, “Imagination
> We can’t recognize revenue immediately, Paul, since we agreed to buy similar software from DSS,” Sarah Young stated. “That’s ridiculous,” Paul Henley replied. “Get your head out of the sand, Sarah, before it’s too late.” Sarah Young is the controller for
> Beazer Homes is a home-building company headquartered in Atlanta, Georgia. Its stock is listed on the New York Stock Exchange. Beazer is required to file Form 10-Q and Form 10-K, as well as an 8-K form when certain changes occur, such as restating financ
> Canada-based Nortel Networks was one of the largest telecommunications equipment companies in the world prior to its filing for bankruptcy protection on January 14, 2009, in the United States, Canada, and Europe. The company had been subjected to several
> Satyam Computer Services, now Mahindra Satyam, is an India-based global business and information technology services company that specializes in consulting, systems integration, and outsourcing solutions. The company was the fourth-largest software expor
> Con-way is a Delaware corporation headquartered in San Mateo, California. It is an international freight transportation and logistics services company that conducts operations in a number of foreign jurisdictions. During the relevant period, the company
> Kirsten had her dream job, combining her love of accounting with traveling. She’d just had a big promotion to Director of International Accounting for Getaway Cruise Lines. As the director in the Houston office, she was currently overseeing final contrac
> In the discussion of loyalty in this chapter, a statement is made that “your ethical obligation is to report what you have observed to your supervisor and let her take the appropriate action.” We point out that you may want to take your concerns to other
> Kay & Lee LLP was retained as the auditor for Holligan Industries to audit the financial statements required by prospective banks as a prerequisite to extending a loan to the client. The auditor knows whichever bank lends money to the client is likely to
> On December 13, 2012, Vertical Pharmaceuticals Inc. and an affiliated company sued Deloitte & Touche LLP in New Jersey state court for alleged accountant malpractice, claiming the firm’s false accusations of fraudulent conduct scrapped a public company’s
> In the 2007 case of Paul V. Anjoorian v. Arnold Kilberg & Co., Arnold Kilberg, and Pascarella & Trench, the Rhode Island Superior Court ruled that a shareholder can sue a company’s outside accounting firm for alleged negligence in the preparation of the
> Paul Lewis is the quality review partner on the Richards & Co. engagement. He was reviewing the workpapers prior to the December 31, 2015, annual audit when he came across transactions that caused him a great deal of concern. He wondered if the firm’s au
> The facts of this case and names of main characters have been changed to focus on specific ethical and professional obligations. Heinrich Müller had always been a team player. His many years at one of the Big Four firms taught him to be loyal, even to a
> Background On November 20, 2012, Hewlett-Packard (HP) disclosed that it discovered an accounting fraud and has written down $8.8 billion of the value of Autonomy, the British software company that it bought in 2011 for $11.1 billion, after discovering th
> Auditors are not always found guilty of negligence, gross negligence, and fraud when lawsuits are filed against them. And they do not always settle lawsuits to avoid costly, protracted litigation. A good example is legal action taken against three accoun
> Ahold is a publicly held company organized in the Netherlands with securities registered with the SEC pursuant to Section 12(B) of the Exchange Act. Ahold’s securities trade on the NYSE and are evidenced by American Depositary Receipts (ADRs). Today its
> Bill Young felt uneasy but good about downloading hundreds of pages of documents about Infant Products Inc., an audit client of his CPA firm, Rogers & Autry, which involved the bribery of foreign government officials to gain favored treatment—a crime und
> Diamond Foods, based in Stockton, California, is a premium snack food and culinary nut company with diversified operations. The company had a reputation of making bold and expensive acquisitions. Due to competition within the snack food industry, Diamond
> Assume in the DigitPrint case that the venture capitalists do not provide additional financing to the company, even though the accrued expense adjustments have not been made. The company hires an audit firm to conduct an audit of its financial statements
> Barry Yellen, CPA, is a sole practitioner. The largest audit client in his office is Rooster Sportswear. Rooster is a privately owned company in Chicken Heights, Idaho, with a 12-person board of directors. Barry is in the process of auditing Rooster’s f
> Jamie Keller was pleased with his new job position as director of international consolidation for Gamma Enterprises. Gamma Enterprises was a consolidation of high-tech gaming companies, with subsidiaries of Alpha, Beta, Gamma, Delta, and Epsilon. This pa
> Romello Accounting LLP is a small CPA firm consisting of three partners and seven other professional staff. The firm offers full attestation and assurance services. Most of the work is for small and medium-sized nonpublic companies. The firm is registere
> Bill Stanley, of Jacobs, Stanley & Company, started to review the working paper files on his client, Imperial Valley Community Bank, in preparation for the audit of the client’s financial statements for the year ended December 31, 2016. The bank was owne
> The story of ZZZZ Best is one of greed and audaciousness. It is the story of a 15-year-old boy from Reseda, California, who was driven to be successful, regardless of the costs. His name is Barry Minkow. Although this case dates back over 30 years, it do
> The Groupon case was first discussed in Chapter 3. Here, we expand on the discussion of internal controls and the risk of material misstatement in the financial statements. Groupon is a deal-of-the-day recommendation service for consumers. Launched in 2
> Ethan Lester was seen as a “model employee” who deserved a promotion to CFO, according to Kelly Fostermann, the CEO of Fostermann Corporation, a Maryland-based, largely privately held company that is a prominent global designer and marketer of stereophon
> In a bizarre twist to a bizarre story, on October 22, 2013, Deloitte agreed to pay a $2 million penalty to settle civil charges—brought by the Public Company Accounting Oversight Board (PCAOB)—that the firm violated federal audit rules by allowing its fo
> How does one go from whistleblower to being charged by the SEC for participating in a scheme from mid-2000 to mid-2002 to overstate online revenue through round-trip transactions over two years while being the CFO of the America Online (AOL) Division of
> Sue Kolb has been associated with Valley View Hospital in Highlands Ranch, a small town in Colorado. Kolb is a CPA licensed in Colorado and handles the hospital’s financial affairs; she climbed the ladder to CFO after 10 years in the accounting departmen
> Do you think it would be ethical for a CPA to have someone else do for her that which she is prohibited from doing by the AICPA Code of Professional Conduct? Why or why not? Do you think a CPA can justify allowing the unethical behavior of a supervisor b
> Another ethical dilemma deals with a runaway trolley heading for five railway workers who will be killed if it proceeds on its present course. The only way to save these people is to hit a switch that will turn the trolley onto a side track, where it wil
> Yardley, Inc., is a mid-size company in Oklahoma City. It has been struggling the past few years because chemical products it uses in its agricultural production process increasingly have been deemed environmentally unsafe. Yardley’s primary reliance on
> You are a tax manager and work for CPA firm that that performs audits, advisory services, and tax planning for wealthy clients in a large Midwestern city. You just joined the tax department after five years as a tax auditor for the county government. Dur
> Joe Kang is an owner and audit partner for Han, Kang & Lee, LLC. As the audit on Frost Systems was reaching its concluding stages on January 31, 2016, Kang met with Kate Boller, the CFO, to discuss the inventory measurement of one its highly valued produ
> One area of concern for the accounting profession for the past 20 years has been the proliferation of alternative practice structures. Potential problems exist because the audit side of the business may be influenced by the public entity that controls it
> Family Games, Inc., is a publicly owned company with annual sales of $50 million from a variety of wholesome electronic games that are designed for use by the entire family. However, during the past two years, the company reported a net loss due to cost-
> Lance Popperson woke up in a sweat, with an anxiety attack coming on. Popperson popped two anti-anxiety pills, laid down to try and sleep for the third time that night, and thought once again about his dilemma. Popperson is an associate with the accounti
> The audit of KBC Solutions by Carlson and Smith, CPAs, was scheduled to end on February 28, 2016. However, Rick Carlson was uncertain whether it could happen. As the review partner, he had just completed going over the work paper files of the senior audi
> How does the nature of the internal audit function, strength of ethical leadership, and level of moral intensity influence whether an auditor will record questionable and undocumented journal entries?
> Describe the role of professional judgment in ethical leadership as it pertains to accountants and auditors.
> How might moral intensity influence the decisions made by accounting professionals?
> Why is it important for a CPA to promote professional services in an ethical manner? Do you believe it would be ethical for a CPA to advertise professional services using testimonials and endorsements? Why or why not?
> Are accountants and auditors moral agents of corporations and society? Explain.
> Values-driven leadership as envisioned in the Giving Voice to Values technique poses the following question: Once I know what is right, how do I get it done and get it done effectively? Discuss how an authentic leader would go about addressing this quest
