The accounting profession like any other is governed by code ethical principles that determine how decisions are made and actions taken. This is because of the fact that professions are established primarily to serve the society, the services provided to the society are so crucial that, high standards of expertise and integrity are required. [Behrman, J. N. (1988)] In order to exercise expertise and integrity professions ought to be granted substantial autonomy in order for its members to discharge their duties fairly without any interference.
This is important because whenever dealing with the public maximum credibility is always very important as it helps to builds public trust. Based on the Stakeholder Impact Analysis and the philosophical approaches to ethical decision making [Bayles, M. D. (1981)] this paper will analyze the Dilemma of Accountant Ethics Case in view of describing the course of action Dan should take.
Based on the American Institute of Certified Public Accountant (AICPA) regulations on Certified Public Accountants code of ethics it is an irregularity to manipulate an audit to suit the demands of the employer, the client, or any other investor or non-investor stakeholders. Bakers Greenleaf is one of the Big Eight accounting firms with prominent accounting professionals such as Oliver Freeman and Daniel Potter and others alike. However, a special audit on a wholly-owned real estate subsidiary (Sub) that was assigned to Dan poses an ethical dilemma to him (Dan) and also to the firm. In the course of the audit Dan comes across a problem – he discovers that the owners of the Sub have overvalued one of its real estate properties.
His efforts to discuss the issue with the client do not bore any fruits and as a result he uses his interpretations of the AICPA regulations to make a decision about the issue - in his final report he gives a “subject-to-opinion”. However, his decision draws severe reprimands from his senior – Oliver Freeman. No amount of threatening makes Dan cede grounds in his quest for following the AICPA regulations to the core. Nevertheless Oliver goes ahead and alters the report and substituted a “clean opinion” on top of that he gives Dan a negative evaluation on his performance of the audit.
Dan is torn between reporting the incident to the associate partner counselor or the personnel department or to an independent review board if only it existed in the company but he reasons that Oliver’s arrogance and six years stay at Baker Greenleaf would count for a lot when it comes to listening of his side of story. The Senator Metcalf call for nationalizing the accounting profession resonate sin him as the only alternative to the dilemma. [Brooks, L.J. (2007)]
Dan’s convictions were a true indicator of integrity and professionalism, professionalism that is guided by the will to fairly offer services that conforms to the laid down AICPA regulations, that takes into considerations the positions of all the stakeholders involved in any auditing context. This case involves several investor and non-investor stakeholders such as firms that extend credit facilities to the Sub, business partners, clients/ buyers, employees, and city planners. All these stakeholders are entitled to a substantial stake in the Sub, based on its performance, and therefore a true and fair audit is one of their rights.
For instance, the credit lenders rely on the audit report to determine the credit worth of the Sub, the customers have got an equal right to know the exact values of the houses at offer so that they can make a sound decision on whether to purchase or not, the passive business associates/ partners have got a right to know the financial position and the performance of the Sub in order to determine whether profits are being made or not, the employees are similarly entitled to an authentic company financial report as it will determine their future allegiance to Sub – poor performances will lead to employees reconsidering their stay.
Course of Action
Dan’s actions as put by Oliver were a creation of a mountain from a moles hill as they were jeopardizing both the clients (Sub) and Bakers reputation. The actions indeed led to the creation of a mountain as Dan was negatively evaluated and could not find an impartial forum within the organization (Baker Greenleaf) to air his sentiments. However, the best thing Dan would have done was to first seek a dialogue with the personnel department whom he termed as ineffective, and then irrespective of the outcome of the dialogue with the personnel department, Dan would then write or personally visit the office of Senator Lee Metcalf in order to help set the stage for a more long term solution to the problem (nationalizing the profession).
The reasons behind this decision are obvious, that according to a 1976 report that was released by the same Senator (Metcalf) indicating that despite constant revisions to regulations governing the accounting profession anomalies always cropped up. Again, Dan worked within the provisions of the AICPA regulations but he was being crucified for that an indicator that the regulations were inconsequential as the body (AICPA) was toothless.
Oliver’s counter-arguments were bent on maintaining a status quo (keep a clean opinion) as when based on the AICPA materiality clause that asserts that any difference in opinion between the client and the CPA affect the income statement by more than 3% was considered material and thus should be disclosed in the CPA’s opinion. [IFAC Code of Ethics, 2001] The fact that the difference in the Sub’s net income was more than 7% is enough grounds for its disclosure irrespective of whether the effect on the consolidated net income was less than 1% or whether the report was only meant for “in-house.” Therefore the Metcalf’s vision is the only way out, but unfortunately the vision though a worthwhile one, was yet to be made into law and therefore Oliver and others alike would continue carrying the day at the expense of the stakeholders’ interests.
Oliver’s decision to put a “clean opinion” on the Sub’s financial statement served to benefit the client/ Sub and also Baker Greenfield as it will get the auditing fee. But on the other side of stakeholders it will impact them negatively. Dan’s decision to give a “subject-to opinion”, a decision that was guided by the code of ethics as put forth by the AICPA was the best especially when looked at from a stakeholder’s point of view.
This argument is based on the notion that accountants/ auditors are bound by the professional ethics as described by the fundamental principles in codes of conduct for professional accountants. The applications of these fundamental principles always leads to the creation of public (stakeholders) interests as well as the interests of the profession and that of the members of the profession. [Brooks, L.J. (2007)]
The decision to seek dialogue with Senator Metcalf is the only practical one as it will stimulate action from a senate level and therefore a more long term solution will definitely be found. For instance, if Metcalf’s vision of nationalizing the profession will become a reality it will go along way into inducing the lost public trust and confidence on the accounting profession. It follows that some stakeholders (those benefiting from false audits) will be negatively affected by such a new move but majority of the stakeholders will benefit.
For instance, potential buyers will not be conned into paying more for overvalued houses, credit institutions will be saved the risks of extending credit to organizations that exceeds their credit worth, passive business partners will get a clear picture of the business performance and hence make wise decisions on whether pull out, hold on, or to invest more, employees will get a clear glimpse of the fruits of the efforts, city planners will get a clear picture of the tax to levy on houses relative to their true values. As it is with many changes the vision of nationalizing the profession also will bring other positive and negative impacts to the stakeholders.
Dan’s decision to stand firm on the convictions of the AICPA fundamental principals was a rare phenomenon, especially going by the findings in Senator Metcalf’s 1976 report. Unfortunately they led him into an ethical dilemma, which “tainted” his reputation as per his senior (Oliver) evaluations. However, the decision to consult Senator Metcalf would bring along term solution to the accounting irregularities and therefore increase the stakeholders trust.
Bayles, M. D. (1981) Professional Ethics. Belmont, Calif.: Wadsworth, accessed on February 28, 2009
Behrman, J. N. (1988). Essays on Ethics in Business and the Professions. New Jersey: Prentice-Hall, accessed on February 28, 2009
Brooks, L.J. (2007). Business & Professional Ethics for Directors, Executives, & Accountants, Chap. 4, 4e, Brooks, Thomson South-Western, accessed on February 28, 2009
IFAC Code of Ethics for Professional Accountants, International Federation for Accountants, (2001). London, England, available at;
Interest in the issue
More accountable financial records
Credible valuation of property
Transparency of financial records
Follow correct valuation procedures