Question

really har Opinion Shopping "We have had Paige & Gentry as our audi- tors for many years, haven't we, Jane? They have been here since I became president two years ago." Yes, Bob, I have been the CFO for seven years, and they were here before I came. Why do you ask?" Well, they were really tough on us "Well, ventry as our audi- really hard. You are a qualified accountant how can we handle this ecame president "Well, Bob, we could have some infor- mal discussions with other auditors- maybe even the ones at the ones at your old company to see how they would handle issues like these. The word will get around to Bill, and he may be more accom me recent discussions when we in the future and will probably shave his were finalizing our year-end audited proposed audit fee for next year when ne statements--not at all like I was used to meets with our Audit Committee next at my last company. When we asked for a month. If you really wanted to play hardball, little latitude, our auditors were usually we could talk the Audit Committee into call pretty obliging. Frankly, I'm a little ing for tenders from new auditors. After all worried." this time, it's logical to check out the mar- "Why, Bob, we had nothing to hide?" ket anyway. We would have advance dis- That's true, Jane, but let's look ahead. cussions during which we would sound We're going to have difficulty making our them out on how they would assess mate- forecast this year, and our bonuses are on riality in our company's case. Our audit the line. Remember, we renegotiated our fee in getting pretty large-almost salary/bonus package to give us a chance $50,000 this year--50 some big firms will at higher incentives, and we have to be be really interested." "Jane, let's play hardball. Get a list of careful." "Looking ahead, we've got a problem with audit firms together for the tender process, obsolete inventory that's sure to come to and I will approach the Audit Committee Be sure to list some small firms, including require discussion for a second year in a Webster & Co., the firm auditing my old row. We've got the warranty problem with company." 2. What are the the electrical harness on the mid-range machine, which is going to cost us a bundle, but we want to spread the impact over the next three years when the customers discover are when the customers discover the problem and we have to fix it up. And don't forget the contaminated waste spill we ataminated waste spill we just had-how much is that going to cost to clean up, if we ever get caught?" "These are potentially big ticket items. Bill Paige, the guy who is in charge of our audit, is not going to let these go by. He said the inventory problem was almost material this year, and we had to argue Questions 1. Who are the major stakeholders involved in this situation? 2. What are the ethical issues involved? 3. Is this situation unethical? Why and why not? 4. What should Jane do if Webster & Co. looks like the choice the Audit Com- mittee will make and recommend to the board of directors?

Answer 1

1. Here the major stakeholders are the old auditors Paige and Gentry, Bob, Jane, Audit Committee and Webster & Co.

2. Ethical issues related to obsolete inventory, warranty problem, contaminated waste spill, Increase in cost and hiding truths about the problems with customers.

3. Hiding the problems regarding the warranty problem is unethical. They should be made aware of the problem. Also, those who are loyal to the products of the company may start using competitors' products which will result in loss of sales.

4. Jane can ask Bob to explain the problems of the company to the auditors and seek on how to proceed with the same.