Chapter 2: Ethics Challenge

Ethics Challenge: Audit Fee Arrangement for Allnet Company (BTN 1-1) 1. Parties Potentially Affected by the Audit Fee Plan o Tana Thorne and her accounting firm: Their professional integrity and reputation could be at risk. o Allnet’s Management: They could benefit from lower fees if profits are reported as low or be incentivized to manipulate profits. o Allnet’s Investors and Creditors: They rely on accurate financial statements and could be misled if the audit is compromised. o Regulatory Bodies: Government agencies overseeing financial reporting standards may be affected if inaccurate reports are published. o General Public: Trust in the financial reporting and auditing process could be undermined. 2. Ethical Factors in this Situation o Independence: Auditors must remain independent to provide an unbiased opinion. A fee tied to profits creates a conflict of interest, as it could pressure Thorne to alter or influence the audit outcome. o Integrity: The auditor's duty is to the public and shareholders. Manipulating audit results for financial gain compromises professional integrity. o Objectivity: The fee arrangement impairs objectivity, as it links the auditor’s compensation to the company’s performance, creating an incentive to overlook or downplay discrepancies. 3. Recommendation on Accepting the Fee Arrangement I would not recommend that Thorne accept this audit fee arrangement. The proposed fee structure creates a clear conflict of interest, which compromises the auditor’s independence, a cornerstone of ethical auditing. 4. Ethical Considerations Guiding the Recommendation o Auditor Independence: Auditors must avoid financial arrangements that could influence their judgment or objectivity. o Professional Standards: This fee arrangement violates professional ethics standards (e.g., AICPA’s Code of Professional Conduct), which require auditors to avoid conflicts of interest. o Public Trust: Auditors serve the public interest, and maintaining confidence in financial reporting requires that they conduct their work without bias or undue influence. Communicating in Practice: Loan Application for Apple (BTN 1-2) 1. Information Requested as a Loan Officer If I were the loan officer reviewing Apple’s request for an expansion loan, I would request the following information: Financial Statements: Income statements, balance sheets, and cash flow statements for the past few years to assess Apple’s profitability, financial health, and ability to repay the loan. o Revenue Projections: Estimates of future income from the expanded computing services. o Business Plan: A detailed plan outlining the market demand, strategy for growth, and how the loan will be used to support this expansion. o Collateral: Information on assets that could be used as collateral for the loan, including equipment, inventory, or intellectual property. o Current Debt Levels: Details on existing loans and liabilities to determine Apple's capacity to take on additional debt. o Ownership Structure: Details on the ownership and whether the company is structured as a corporation, partnership, or sole proprietorship. 2. Impact of Business Organization on Loan Decision The form of business organization affects my decision in terms of liability and repayment security. For instance: o Corporation: Limited liability for the owners, but the company’s assets and creditworthiness would be the primary basis for the loan decision. o Partnership or Sole Proprietorship: Personal assets of the owners may be at risk, increasing my interest in the owner’s personal financial situation and potential collateral. o Teamwork in Action: Establishing a Regular Team Meeting (BTN 1-3) 1. Organizing Team Meetings o Team Discussion: Form a team to establish a regular meeting schedule. Discuss members’ availability and choose a convenient time and location for team meetings outside of scheduled class times. o Notification: Once the team agrees on a regular meeting schedule, notify the instructor via email or memorandum with the details of when and where the meetings will be held. 2. Exchange Contact Information o Communication Tools: Develop a list of each team member’s contact information, including:  Phone numbers for immediate communication.  Email addresses for official communications and sharing documents.  LinkedIn profiles (optional) for professional networking. This collaboration will enhance communication and help the team remain organized and on task for successful teamwork.