ACT505-Accounting Theory and Contemporary Issues

1. What standards and principles of ethics did Johnny and Mary Jo violate? Should Johnny be sanctioned by the firm or the PCAOB? If so, how? Should Mary Jo be sanctioned by the university office responsible for ensuring academic integrity? If so, how?

2. Who are the main stakeholders in each situation aside from Johnny and Mary Jo? How might each of these stakeholders be affected by Johnny’s and Mary Jo’s choices, respectively?

3. How might Johnny and Mary Jo rationalize their behavior as acceptable?

4. What alternative actions would you recommend for Johnny and Mary Jo?

5. Johnny and Mary Jo both failed to speak up when confronted with their ethical dilemmas. What factors contributed to their silence? Assume that they wanted to act ethically. How could they have given voice to their concerns?

1.Based on the provided case studies, it could be found that Mary and Johnny have breached specific ethical principles and standards, which are enumerated as follows:

In accordance with the professional scenario, it could be cited that there are two missing documents in the ABC Company’s work paper, which include the worksheet of a major item and final version of the signed letter of engagement. Hence, according to the manager’s direction, one previous version of the file is inserted into the worksheet. In addition, there is placement of audit engagement letter in the file in the absence of documentation of true explanation and date. This action has breached the principle of PCAOB Auditing Standard (AS) 1215, which was one called AS 3, Audit Documentation (Bonin 2013).

The student scenario states that Mary Jo downloaded the test bank from the site, which was accessible for the instructors only. However, in the examin

For the professional scenario, it is noteworthy that PCAOB must sanction Johnny for his particular actions leading towards the breach of AS 1215 (Cameron and O'Leary 2015). Since this could be considered as a major infringement, Johnny needs to be penalised by removal from the audit department of ABC Company along with ensuring that he could not provide professional audit services for a specified timeframe.

For the student scenario, the university could sanction her for violating the integrity principle for the institution code. Due to this, Mary needs to be penalised by restricting her to sit for the examination. In addition, it would be feasible for the university to suspend Mary for a particular timeframe during which she could not be able to attend classes.

2.It is noteworthy to mention that the provided situation of auditing and ethical violations have significant negative impact on the key stakeholders. For professional scenario, the key stakeholders besides Johnny include the audit firm, the managers and investors of ABC Company. For the student scenario, the stakeholders include Samantha, university and its students besides Mary Jo.

Since the previous version of the worksheet is included, there would be misleading representation of the accurate financial position of the organisation. Such misleading information might cause trouble for the investors, as they might not be able to make investment decisions resulting in lower return on investment. In addition, relationship could be observed between the manager of ABC Company and Johnny. Hence, if the actual facts are revealed, the effect would be on the position and job of the manager. Moreover, the disclosure of such facts would have adverse impact on the goodwill of the audit organisation as well (DesJardins and McCall 2014).

For the student scenario, Samantha is considered to be the major stakeholder since the same punishment would be applicable to her as well due to the fact that she suggested Mary to use the test bank for obtaining higher marks in the examination. This would have negative effects on the other students, as they could not secure good marks like Mary, since they abide by the ethical code of the university. Besides this, the disclosure of the incident would negatively influence the image of the university (Cullingford and Blewitt 2013).

3.Both Mary Jo and Johnny have reasons of rationalising their behaviours as acceptable. In case of Johnny, one of the primary reasons for his behaviour is to protect his profession from the legal proceedings of PCAOB. Johnny could be penalised, if PCAOB identifies mistakes in the audit papers due to the absence of the last version of signed engagement and worksheet. Besides this, Johnny could state that he has carried out such work at the direction of the manager of ABC Company, since all staffs are needed to abide by the orders of their managers (DesJardins, J.R. and McCall 2014). These are some of the reasons that Johnny could lay forth for rationalising his behaviour as acceptable.

In case of Mary Jo, her motive is to secure good marks in the examination. From the student scenario, it has been observed that the long schedule of tests has tired Mary to prepare for the last examination. However, she does not want to fail in the examination. All these reasons have compelled her in using the test bank for final examination. Therefore, Mary Jo could use these reasons for rationalising her behaviour as acceptable (Fiolleau and Kaplan 2017).

4.Based on the above assessment, few main recommendations could be provided to Johnny as well as Mary Jo for their particulars behaviours and actions, which are described as follows:

It is necessary for Johnny to adhere to all the principles and guidelines laid down in PCAOB AS 125 in order to document audit work. More specifically, Johnny is suggested to undertake various actions. Firstly, Johnny needs to provide rightful explanation of inclusion of work paper of the previous version. The explanation is requires, since PCAOB would find it easier in understanding the work paper associated with the ABC Company. In addition, Johnny is required to make arrangements for all the necessary documents in a single place in order to present the same to the representative of PCAOB during visiting time (Henderson et al. 2015).

For Mary Jo, she is needed to adhere to the code of integrity associated with her university coupled with the policies of academic integrity on the syllabus. In other words, Mary should not download the test paper available in the website, since it is only for the use of the instructors and not the students. Moreover, Mary is suggested to study tirelessly for her examination for securing higher marks rather than using unfair means to accomplish the same (Hoque 2018). 

5.Some significant factors could be seen in relation to the silence of Mary Jo and Johnny, which are demonstrated as follows:

For Johnny, it could be observed that he has remained silent, since the manager of ABC Company has instructed him to act as per his directions. Moreover, another reason identified behind his silence is to save his job for avoiding the penalty that PCAOB could impose on him (Scott 2015). On the other hand, Mary Jo has stayed silent because she does not want to fail in the examination; instead, she intends to score higher marks. These could be identified as the primary reasons for both Mary Jo and Johnny behind their silence.

If Johnny as well as Mary Jo intended to maintain their ethical integrity, they could have undertaken different courses of actions, which are elucidated as follows:

Johnny needed to raise his voice against the direction of the manager of ABC Company for including the worksheet in the file, which did not contain any date and explanation. Besides this, Johnny was needed to highlight this issue in front of the visiting PCAOB representative for seeking assistance in this matter (Jefrey 2018).

In case of the student scenario, Mary Jo is needed to raise her concern by not accepting the proposal of her friend, Samantha. Instead, Mary could have brought forward the issue in front of the university officials that the test bank was available for free download in a website. More specifically, she could have raised the issue in front of the ethical board of the university so that the other students could not download the test paper from the website (Rankin et al. 2012).

References

Bonin, H., 2013. Generational accounting: theory and application. Springer Science & Business Media.

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.

Cullingford, C. and Blewitt, J., 2013. The sustainability curriculum: The challenge for higher education. Routledge

DesJardins, J.R. and McCall, J.J., 2014. Contemporary issues in business ethics. Cengage Learning.

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.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Hoque, Z., 2018. Methodological issues in accounting research. Spiramus Press Ltd.

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

Rankin, M., Ferlauto, K., McGowan, S.C. and Stanton, P.A., 2012. Contemporary issues in accounting. Milton, Australia: Wiley.Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall