Question 1

The accountants that faced ethical dilemmas, in this case, include Roger Shlonsky- an audit partner at KMG, Russell Smith- Cardillo’s controller and Helen Shepherd- Touche Ross’s audit partner. Shlonsky and Shepherd were faced with the dilemma of whether to accept explanations from their clients, which were not satisfactory for a transaction that was regarded as being material. The transaction appeared as being suspicious, but being more inquisitive would result to a negative relationship with the client.  Smith, on the other hand, was faced with the dilemma whether to cooperate with Rognlien and keep his job or uphold his ethical and professional norms and lose his job.

The parties that are likely to be affected by the outcome of these dilemmas include creditors, stockholders, the three accountants, the accounting profession, other clients and CPA firms.

As accountants, they should have the interest of the public at heart. They have the responsibility of ensuring that all the information that is disseminated reflects a true and fair view.  Creditors need accurate information to make their decision on whether to extend relevant financial support. The responsibility to the profession was based on the fact that they ought to have followed the laid down code of professional conduct. Stockholders need the information to assess the value of the firm to make a decision of their ownership prospects. The responsibility to self was based on the fact that acting ethically will prevent them from incurring any negative consequences.

The accountants involved fulfilled their responsibilities. Smith was ready to lose his job in order to act ethically while Shlonsky and Shepherd went against their client despite the consequences that loomed.

Question 2

The procedures that an auditor should execute while conducting a review include:

i). Performing analytical procedures.

ii).Making inquiries

iii). Reading the board’s meeting minutes.

iv). Getting hold of written confirmation regarding the accuracy of financial statements.

The auditors did not take all the steps in discovering the adjusting entry since they should have been more skeptical from the word go. The auditors should have informed the audit partner immediately since she would have provided more ideas on the way forward.

Question 3

The accuracy of the $203,000 adjusting entry was evidenced by Lawrence’s first and second representations that showed the entry was valid. The representations from Rognlien in both November 1985 and December 1985 also showed that the entry was valid.

However, it became suspicious when Rognlien could not allow Shepherd to contact the United Airlines’ board chairman. Shepherd also conducted a review that showed the $203,000 was refundable under certain conditions.

Auditors are usually expected to collect evidence that is regarded as being sufficient. This is usually relative as it depends on the auditor involved. However, auditors ought to ensure that the evidence involved is reliable. This is something shepherd should have considered regarding the adjusting entry that was being disputed. Oral representations are not supposed to be taken as being reliable.

Question 4

The objective of enforcing Form 8-K statements is to ensure that the public using the company’s financial statements have sufficient knowledge of what amounted to the previous auditors being changed. This restricts companies from changing auditors on grounds that are not justified.

By discussing the transaction, Shepherd had not violated client confidentiality, and she was also not obligated to disclose to Cardillo executives of the information contained in the 8-K exhibit letter as there was no a contractual relationship as of that time.

Question 5

Auditors tend to follow various standards that are usually embedded in the relevant companies of operation in order to assess potential clients. Among the measures that can be used to assess integrity includes conducting background checks on the key executives, reaching out to the previous auditor, and maybe relevant regulatory authorities that might have such information.

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