Accounting ethics and related regulatory issues

Ethics and Related Issues

Brief Review of the Case from the Auditors Point-of-View

Beaudean who has just become a senior partner at Cardinal and Coyote Audit firm has been tasked with doing a background check on a new client Jost Furniture International by Yancy Corliss a new partner at the firm where he works. Jost Furniture International is upbeat that Cardinal and Coyote stand to get the audit as long as they submit a reasonable bid. Background checks were to be conducted to ascertain whether Jost had potential risk as a future client to Cardinal and Coyote. Beaudean has other two staff members Vinnie Gabelli and Jackie Oloff with whom he will carry out Jost Furniture International Assessment. It is very risky to take on Jost Furniture International as a client because of the concerns that the predecessor audit firms had raised. An audit firm that had helped Jost Furniture with its Initial Public Offer (IPO) and audited its financial statements for five years resigned in 2007 after issuing a modified opinion on its 2006 financial statements. The firm's unqualified opinion pointed at Jost's persistent operating losses which was an impediment to their ability to secure needed financing. The firm that took over from the Big-Four that audited Jost financial statements for 2007 also raised going concern questions. The manner in which firms that audited Jost financial statements were disqualified raises a lot of questions about its operations considering that different regional CPA firms that audited Jost financial statements for 2008 and 2009 were also disqualified. It is also thought provoking why Jost in a span of four years had dispensed with three company controllers. That is a very high rate of staff turnover. The fact that Jost International had violated a debt covenant was reason enough to avoid having any business relationship with them. Finally, the temporary cash flow problem that Jost had was an indication that they had liquidity problems.

Ethical dilemmas faced by or caused by the auditor

Cardinal and Coyote is in business and needs clients like the Jost Furniture International that have propensity for growth yet in discharging its responsibilities the team that has been tasked with doing the background check realizes that it is not right to have Jost as one of your clients because of the concerns that the predecessor audit firms had raised ranging from its persistent operating losses to the rate of staff turnover (AICPA, 1988).

When Beaudean approached Jerry Jost with a view to obtaining permission to contact predecessor firms that audited Jost Furniture International accounts, Jost expressed the issue of personality conflict and was adamant that the previous audit firms would not make fair and objective observations on Jost (Kimmel, Weygandt & Kieso, 2011). I only find some element of conflict of interest in Oloff trying to contact Miles Fraser, the attorney for Jost Furniture, with whom he had a business relationship with.

Philosophical and practical approaches to ethical decision making that could have mitigated the problems cited in the case

Oloff should not have allowed himself to take part in the assessment of Jost because by the virtue of the fact that he had business dealings with Frazer Miles, he was privy to information that could be prejudicial to Jost with respect to its dealings with Cardinal and Coyote. With regard to personality conflict issue that Jost cited, Beaudean's was to make a fair and objective assessment of the predecessor audit firm's opinion on Jost Furniture International financial position (AICPA, 1988).

Alternatives to solve the situation in the case

Professional ethics calls upon auditors to be objective and independent. It is difficult for members of professional bodies to maintain the appearance of independence. However, they must always strive to be objective.