Ethics Case 20–5 Softening the blow ● LO1 LO2 LO3
Late one Thursday afternoon, Joy Martin, a veteran audit manager with a
regional CPA firm, was reviewing documents for a long-time client of
the firm, AMT Transport. The year-end audit was scheduled to begin
Monday.
For three months, the economy had been in a down cycle and the
transportation industry was particularly hard hit. As a result, Joy
expected AMT’s financial results would not be pleasant news to
shareholders. However, what Joy saw in the preliminary statements made
her sigh aloud. Results were much worse than she feared.
“Larry (the company president) already is in the doghouse with
shareholders,” Joy thought to herself. “When they see these numbers,
they’ll hang him out to dry.”
“I wonder if he’s considered some strategic accounting changes,” she
thought, after reflecting on the situation. “The bad news could be
softened quite a bit by changing inventory methods from LIFO to FIFO or
reconsidering some of the estimates used in other areas.”
Required:
1. How would the actions contemplated contribute toward “softening” the bad news?
2. Do you perceive an
ethical dilemma? What would be the likely impact of following up on
Joy’s thoughts? Who would benefit? Who would be injured?
