The Scenario: ABC Company and PCAOB

Discuss About The Accounting Education Research Prize Winning.

Based on the provided professional scenario, it could be observed that Johnny is acting as the in-charge on audit engagement for the ABC Company. The “Public Company Accounting Oversight Board (PCAOB)” would visit the organisation for inspection purpose. In addition, another purpose of such visit would be to investigate the audit work papers of the ABC Company. Johnny has received a request from the manager of the organisation in relation to the paper version of the work papers from the file room. Even though the delivery of the work papers, it has been later found that the file is not fully complete, sine two major documents were missing. They include key item worksheet and final version of the signed letter of engagement.

Even though the work papers are obtained after some initial issues, the work papers do not contain engagement letter including original signature of the client. At the request of the manager, Johnny has obtained the signature of the client by not disclosing the actual date of insertion or the reason behind its inclusion. In this case, the auditing principle that is violated is the principle of objectivity. In this context, Gaynor et al. (2015) cited that under the objectivity principle, the auditors need to exhibit the greatest level of professional objectivity in collecting, analysing and communicating information regarding the auditing activities. In addition, the auditors are needed to conduct a balanced evaluation of all the pertinent circumstances and there would be no undue influence on them when they undertake judgements. In the provided case, it is found that the manager of the ABC Company has unduly influenced the actions of Johnny in submitting the audit work papers and thus, Johnny could not considered as impartial and independent, which violates the principle of objectivity (Fiolleau and Kaplan 2017).

Therefore, PCAOB could sanction Johnny on the ground that he has carried out acts that are not in the best interests of the stakeholders and the acts conducted have been highly unprofessional. As a result, both Johnny and the manager are subject to severe consequences, if the members of PCAOB manage to identify that they have adopted unscrupulous measures in order to submit auditing work papers.  

According to the provided case, it has been identified that Mary Jo and Samantha are two friends studying in the same class. Mary Jo has been tired due to study pressure and hence, she lacks in the subject, Accounting 355. There is a high probability that Mary Jo might not secure pass marks in the examination, since it would be her third examination this week. Due to this, Samantha has advised Mary Jo to use test banks in the form of study aids. Mary downloaded the test books from the provided website; however, it has been clearly written in the website that the test banks are for the use of the instructors. Mary Jo ignored the instructions and she has used them for securing good marks in the examination.

Implications of Violating the Objectivity Principle

In this case, the ethical principles that have been breached constitute of honesty, fairness, responsibility and legality. As stated in the honesty principle, it is necessary for an individual to be truthful, knowledgeable and understanding through ensuring personal and intellectual honesty in speech and learning (Martinov-Bennie and Mladenovic 2015). In this case, Mary Jo has adopted shortcut to secure good marks in the test by avoiding thorough learning of the subject, which breaches the principle of honesty. The principle of fairness cites that equality needs to be assured in individual procedures and practices as well as in interactions. In this case, Samantha has provided unethical advice to Mary Joe about downloading the test banks and by downloading the same. Mary Joe could not maintain this principle.

In accordance with the responsibility principle, it is crucial for an individual to maintain effective standards of conduct in learning and research by needing shared responsibility for ensuring academic integrity (Christensen, Cote and Latham 2016). In this case, Mary Jo and her friend Samantha have used the test banks to perform well in the test and hence, it could be said that they are not responsible to ensure academic integrity of the institution. Finally, according to the legality principle, there are certain legal norms associated with the conduct and disclosure of research, especially related to copyright along with the terms and conditions to regulate the access to the research resources (Cameron and O’Leary 2015). In this case, despite the notification provided in the website that the test banks are for use of the instructors only, Mary Jo has downloaded them, which violates the principle of legality. However, if the institution could not catch such misconduct of Mary Jo, she would be sanctioned for ensuring academic integrity of the university.

In the provided case, the major stakeholders include ABC Company, the manager of the organisation and PCAOB. As observed from the case study, the audit issue is related to the ABC Company, since two major documents of the organisation have been missing in the final file. This could have drastic impact on the books of accounts of the organisation. It has been identified that the supporting file of a major item has been missing. For instance, if the major item is revenue, the management of ABC Company might intend to have a look at the segment-wise revenue generated from each business subsidiary (Beasley 2015). If relevant information is not obtained, questions would be raised from the users of its financial statements regarding the provided financial information. As a result, it would result in loss of trust of the shareholders and brand image of the ABC Company in the market.

The Role of Stakeholders in the Scenario

The manager of the ABC Company is the key stakeholder in this provided scenario, since Johnny has carried out the activities at his directions. Even though the supporting worksheet is lost, there was an electronic version on the computer hard drive of Johnny. This has been reprinted at the direction of the manager and no explanations about the work papers have been there at the time of inclusion in the final file. In addition, Johnny has included original client signature; however, the true date of insertion is not mentioned. In this case, the responsibility of the manager towards his duties at the ABC Company could not be questioned, since the individual has collaborated with Johnny to hide the mistakes made. In opposition, the individual might be warned regarding such irresponsible attitude or even the person could have been terminated due to lack of due diligence (Karaibrahimoglu and Cangarli 2016).

In this case, there are two other stakeholders besides Mary Jo and they are Samantha and the university, in which Mary Jo is pursuing her studies. It could be observed that Mary has approached Samantha regarding her inability to prepare for the final examination. Samantha has asked Mary to use the test banks in the form of study guide, as it would help the letter to secure good marks in the examination. However, it is clearly specified that the test banks are of use for the instructors only and the students are not allowed to refer to the same for any sort of assistance. Therefore, if the university catches Mary Jo at a later point of time regarding the use of test banks for exam preparation; it could have negative effects on her career. Such negative effects could vary from short-term to long-term suspension, dropping a year or even expulsion from the university. If Mary Jo confesses to the top authority of the university that Samantha has helped her to know about the test banks, the impact would be similar on the latter individual as well (Apostolou et al. 2015).

Another stakeholder is the University of Mary Jo. It is clearly laid out in the university rules and regulations that every student has to follow the same while pursuing their respective courses. In this case, the academic integrity would be violated and the university would have to enforce more strict actions on the students for maintaining its policies and practices (Tormo-Carbó, Seguí-Mas and Oltra 2016).

The Scenario: Mary Jo and Samantha

It has been identified that Johnny has performed duties according to the directions of the manager engaged in the ABC Company. Accordingly, the work papers have been delivered to the office of the manager before the arrival of the inspectors of PCAOB. As Johnny is the senior of the audit engagement team, it is quite obvious that some staffs would work under his supervision and they would carry out the initial audit work (Curtis et al. 2017). After carrying out all the audit work, the final report is provided to the ABC Company. However, the manager of the organisation has lost the original file due to which he has asked for an additional copy. Hence, in this scenario, Johnny could say that the correct report with all the detailed information has been provided to the organisation; however, the loss of such report is due to the negligence of the manager. As a result, the decision of Johnny could be rationalised (Bobek et al. 2016).

It has been identified that Mary Jo and Samantha are two friends studying in the same class. Mary Jo has been tired due to study pressure and hence, she lacks in the subject, Accounting 355. There is a high probability that Mary Jo might not secure pass marks in the examination, since it would be her third examination this week. For rationalising this behaviour, Mary Jo could say that the test banks were used just for reference and they have helped in enhancing her knowledge base. As a result, it has helped her in performing better in the examination through which her professional career would be enhanced (Best and Kahn 2016).

Based on the provided scenario, it could be observed that even though the supporting worksheet is lost, there was an electronic version on the computer hard drive of Johnny. This has been reprinted at the direction of the manager and no explanations about the work papers have been there at the time of inclusion in the final file. In addition, Johnny has included original client signature; however, the true date of insertion is not mentioned (Yawar and Seuring 2017). In this case, Johnny could have informed the top management regarding the direction of the manager of ABC Company. In addition, the individual could have restricted him in manipulating the revised documents for maintain both personal as well as professional integrity.

In this case, Mary Jo could have avoided using the test banks and she would have suggested Samantha to abstain from using the same in order to prepare for the final examination. Hence, such act would ensure the ethical integrity of the student as well as the university (Webb and Chaffer 2016).

Violation of Ethical Principles in the Mary Jo and Samantha Scenario

After the act of Johnny was revealed, the main reasons that Johnny would stay silent comprise of the following:

• The individual has acted in the interests of the manager of ABC Company, as this would ensure personal interest as well.
• Manipulations were made in the disclosure of a key item without providing any justifications for the delayed addition in the file.
• Johnny has met the clients of the ABC Company, which violated the principle of independence and the confidential information of the organisation (Jefrey 2018).

Hence, in this scenario, Johnny could have informed the management of ABC Company about the directions that the manager of the organisation have given to him along with providing accurate information to the members of PCAOB.

After revealing the act of Mary Jo, the main reasons that Mary Jo would stay silent comprise of the following:

• She had used the test banks, which the students of the university were not supposed to use.
• Wrong certification was provided that Mary Jo had complied with all the university norms and regulations (Wilson 2015).
• The confession might have negative impact on the career progress of Samantha, who is the friend of Mary Jo.

In this case, Mary Jo could have abstained from using the test banks and she could have asked Samantha to stop using the same by reminding her of the university rules and policies.

References:

Apostolou, B., Dorminey, J.W., Hassell, J.M. and Rebele, J.E., 2015. Accounting education literature review (2013–2014). Journal of Accounting Education, 33(2), pp.69-127.

Beasley, M.S., 2015. Auditing cases: An interactive learning approach. Prentice Hall.

Best, J.W. and Kahn, J.V., 2016. Research in education. Pearson Education India.

Bobek, D.D., Dalton, D.W., Daugherty, B.E., Hageman, A.M. and Radtke, R.R., 2016. An Investigation of Ethical Environments of CPAs: Public Accounting versus Industry. Behavioral Research in Accounting, 29(1), pp.43-56.

Cameron, R.A. and O’Leary, C., 2015. Improving ethical attitudes or simply teaching ethical codes? The reality of accounting ethics education. Accounting Education, 24(4), pp.275-290.

Christensen, A.L., Cote, J. and Latham, C.K., 2016. Insights regarding the applicability of the defining issues test to advance ethics research with accounting students: A meta-analytic review. Journal of business ethics, 133(1), pp.141-163.

Curtis, M.B., Vinson, J.M., Conover, T.L., Lucianetti, L. and Battista, V., 2017. National culture and ethical judgment: A social contract approach to the contrast of ethical decision making by accounting professionals and students from the US and Italy. Journal of International Accounting Research, 16(2), pp.103-120.

Fiolleau, K. and Kaplan, S.E., 2017. Recognizing ethical issues: An examination of practicing industry accountants and accounting students. Journal of Business Ethics, 142(2), pp.259-276.

Gaynor, G.B., Janvrin, D.J., Pittman, M.K., Pevzner, M.B. and White, L.F., 2015. Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on IESBA Consultation Paper: Improving the Structure of the Code of Ethics for Professional Accountants: Participating Committee Members. Current Issues in Auditing, 9(1), pp.C12-C17.

Jefrey, C. ed., 2018. Research on professional responsibility and ethics in accounting. Emerald Publishing Limited.

Karaibrahimoglu, Y.Z. and Cangarli, B.G., 2016. Do auditing and reporting standards affect firms’ ethical behaviours? The moderating role of national culture. Journal of Business Ethics, 139(1), pp.55-75.

Martinov-Bennie, N. and Mladenovic, R., 2015. Investigation of the impact of an ethical framework and an integrated ethics education on accounting students’ ethical sensitivity and judgment. Journal of Business Ethics, 127(1), pp.189-203.

Tormo-Carbó, G., Seguí-Mas, E. and Oltra, V., 2016. Accounting ethics in unfriendly environments: The educational challenge. Journal of business ethics, 135(1), pp.161-175.

Webb, J. and Chaffer, C., 2016. The expectation performance gap in accounting education: A review of generic skills development in UK accounting degrees. Accounting Education, 25(4), pp.349-367.

Wilson, R.M. ed., 2015. Accounting education research: prize-winning contributions. Routledge.

Yawar, S.A. and Seuring, S., 2017. Management of social issues in supply chains: a literature review exploring social issues, actions and performance outcomes. Journal of Business Ethics, 141(3), pp.621-643.