Ethics Case Jeremy Roberts had great expectations about his future as he sat in

Question

Ethics Case

            Jeremy Roberts had great expectations about his future as he sat in his graduation ceremony in May 2015. He was about to receive his Master of Accounting degree, and next week he would begin his career on the audit staff of Mayberry, Taylor, Jones & Co., CPAs.

            Things looked a little different to Jeremy in February 2016. He was working on the audit of Johnson Manufacturing, an electronics manufacturer with a calendar year-end. The pressure was enormous. Everyone on the audit team was putting in 70-hour weeks, and it still looked as if the audit wouldn’t be done on time. Jeremy was doing work in the fixed asset area, vouching additions for the year. The audit program indicated that a sample of all items over $20,000 should be selected, plus a judgmental sample of smaller items. When Jeremy went to take the sample, John Wren, the senior, had left the client’s office and couldn’t answer his questions about the appropriate size of the judgmental sample.   Jeremy forged ahead with his own judgment and selected 50 smaller items. His basis for doing this was that there were about 250 such items, so 50 was a reasonably good proportion of such additions.

            Jeremy audited the additions with the following results: The items over $20,000 contained no misstatements; however, the 50 small items contained a larger number of misstatements. In fact, when Jeremy projected them to all such additions, the amount seemed quite significant.

            A couple of days later, John Wren returned to the client’s office. Jeremy brought his work to John to apprise him of the problems he found and got the following response:

            “Gosh, Jeremy, why did you do this? You were only supposed to look at the items over $20,000 plus 5 or 10 little ones. You’ve wasted a whole day on that work, and we can’t afford to spend any more time on it. I want you to throw away the schedules where you test the last 40 small items and forget you ever did them.”

            When Jeremy asked about the possible audit adjustment regarding the small items, none of which arose from the first 10 items, John responded, “Don’t worry, it’s not material anyway. You just forget it; it’s my concern, not yours.”

Required: In a 3 to 4-page paper, answer the following questions regarding the case:

1. Describe the ethical dilemma in detail, using pertinent facts to support your answer.

2. Identify each of the stakeholders and fully explain how each person/group is a

     stakeholder.

3. List, in detail, several alternative responses that can be selected regarding the

     dilemma and explain the effect that selecting each of the alternative responses

    would have on the stakeholders.

4. Fully explain the action and implementation plan you would take regarding the

     response you would select.

Explanation / Answer

The dilemma was that Jeremy didn’t find any misstatement in items over 20000$ however he found substantial misstatement in smaller items which should be reported in the audit report . whereas as per the senior John Wren Jeremy shouldn’t have audited the smaller items with keen appropriation he should have audited the items over 20000$ keenly with appropriation . However as per Jeremy those items should be recorded if since those smaller items were showing a considerable amount showed be recorded in the audit report or else the candidate should be informed about the consequences of losses to be faced by the candidate . The stakeholders in this case are the Johnson manufacturing as it will bear considerable loss if the smaller items demonstrate a considerable amount of misstatement. The other stakeholder shall be Mayberry, Taylor, Jones & Co. The alternative responses is that if the smaller items donot replicate a considerable amount of misstatement then the officials of Johnson Manufacturing should be informed of the mistake and the ways of rectifying the mistakes to prevent any further loss . Secondly if the smaller items depict a considerable amount of misstatement then they should be reported in the audit report. As a senior personnel I would inform the company incharges as well as show the amount in the audit report to secure the stake of audit firm and in order to prevent the stake of the company I will inform the companies drawback and the ways to improve n work upon its drawbacks.

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