Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 18

Assume in the DigitPrint case that the venture capitalists do not provide additional financing to the company even though the adjustments have not been made. The company hires an audit firm to conduct an audit of its financial statements to take to a local bank for a loan. The auditors become aware of the unrecorded $1 million in accrued expenses. Liza Doolittle pressures them to delay recording the expenses until after the loan is secured. The auditors do not know whether Henry Higgins is aware of all the facts. Identify the stakeholders in this case? What alternatives are available to the auditors? Use the AICPA Code of Professional Conduct and Josephson’s Six Pillars of Character to evaluate the ethics of the alternative courses of action.

Step 1 of 2

The stakeholder in this case is the employer and their investors. The audit report will be used by the investors. The question states that the investors will not provide additional funding. Thus, even if the auditors chose to hide the $1 million cost, it wouldn’t have affected the investor’s decision. However, this is unimportant as auditors must maintain a professional standard to reveal what they believe to be inaccurate to people using the report.