Use the six-step approach to resolve the ethical dilemma in the case below. Mr. Ferdinand Okada, a senior audit manager for Dreams and Solaire, CPAs, has recently been informed that the firm plans to promote him to partner within the next year or two if he continues to perform at the same high-quality level as in the past. Mr. Ferdinand excels at dealing effectively with all people, including client personnel, professional staff, partners and potential clients. He is excited about his future with the firm. Mr. Ferdinand has recently been assigned to the audit of Resorts International, a large wholesale company that ships goods throughout the world. It is one of Dreams and Solaire’s most prestigious clients. During the audit, Mr. Ferdinand determines that Resorts International uses a method of revenue recognition called “bill and hold” that has recently been questioned by the SEC. After considerate research, Mr. Ferdinand concludes that the method of revenue recognition is not appropriate for the Resorts International. In discussing the matter with the engagement partner, she concludes that the accounting method has been used for more than 10 years by the client and is appropriate, especially considering that the client does not file with the SEC. The partner is certain that the firm would lose the client if the revenue recognition method is found inappropriate. Mr. Ferdinand argues that the revenue recognition method was appropriate in prior years, but the new SEC ruling makes it appropriate in the current year. Mr. Ferdinand recognizes the partner’s responsibility to make the final decision, but he feels strongly enough to state that he plans to follow the requirements and include a statement in the working papers that he disagrees with the partner’s decision. The partner informs Mr. Ferdinand that she is unwilling to permit such a statement because of the potential legal implications. However, she is willing to write a letter to Mr. Ferdinand stating that she takes full responsibility for making the final decision if a legal dispute ever arises. She concludes by saying, “Ferdinand, partners must act like partners, not like loose cannons trying to make life difficult for their partners. You have some growing up to do before I would feel comfortable with you as a partner.”
: Use the six-step approach to resolve the ethical dilemma in the case below.
Mr. Ferdinand Okada, a senior audit manager for Dreams and Solaire, CPAs, has recently been informed that the firm plans to promote him to partner within the next year or two if he continues to perform at the same high-quality level as in the past. Mr. Ferdinand excels at dealing effectively with all people, including client personnel, professional staff, partners and potential clients. He is excited about his future with the firm.
Mr. Ferdinand has recently been assigned to the audit of Resorts International, a large wholesale company that ships goods throughout the world. It is one of Dreams and Solaire’s most prestigious clients. During the audit, Mr. Ferdinand determines that Resorts International uses a method of revenue recognition called “bill and hold” that has recently been questioned by the SEC. After considerate research, Mr. Ferdinand concludes that the method of revenue recognition is not appropriate for the Resorts International.
In discussing the matter with the engagement partner, she concludes that the accounting method has been used for more than 10 years by the client and is appropriate, especially considering that the client does not file with the SEC. The partner is certain that the firm would lose the client if the revenue recognition method is found inappropriate. Mr. Ferdinand argues that the revenue recognition method was appropriate in prior years, but the new SEC ruling makes it appropriate in the current year.
Mr. Ferdinand recognizes the partner’s responsibility to make the final decision, but he feels strongly enough to state that he plans to follow the requirements and include a statement in the working papers that he disagrees with the partner’s decision. The partner informs Mr. Ferdinand that she is unwilling to permit such a statement because of the potential legal implications. However, she is willing to write a letter to Mr. Ferdinand stating that she takes full responsibility for making the final decision if a legal dispute ever arises. She concludes by saying, “Ferdinand, partners must act like partners, not like loose cannons trying to make life difficult for their partners. You have some growing up to do before I would feel comfortable with you as a partner.”
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