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Part TwoEthical Governance & Accountability
ETHICS CASE
Albert Gable is a partner in a CPA firm located in a small midwestern city which has a population of approximately 65,000. Mr. Gable's practice is primarily in the area of personal financial planning; however, he also performs an annual audit on the city's largest bank.
Recently, Mr. Gable was engaged by Larry and Susan Wilson to prepare a comprehensive personal financial plan. While preparing the plan, Mr. Gable became personal friends of the Wilsons. They confided to him that they have had a somewhat rocky marriage and, on several occasions, seriously discussed divorce. Preparation of the comprehensive personal financial plan, which is nearing completion, has taken six months. During this period, Mr. Gable also performed the annual audit for the bank.
The audit test sample selected at random from the bank's loan file included the personal loan files of Larry and Susan Wilson. Because certain information in the loan files did not agree with facts personally known to Mr. Gable, he became somewhat concerned. Although he did not disclose his client relationship with the Wilsons, he did discuss their loan in detail with a loan officer. The loan officer is very familiar with the situation because he and Larry Wilson were college classmates, and now they play golf together weekly.
The loan officer mentioned to Mr. Gable that he believed Larry Wilson was "setting his wife up for a divorce." In other words, he was arranging his business affairs over a period of time so that he would be able to "leave his wife penniless." The loan officer indicated that this was just "locker room talk" and that Mr. Gable should keep it confidential.
Mr. Gable's compensation from his firm is based upon annual billings for services. If Mr. Gable resigns as CPA for the Wilsons, it would result in his losing a bonus constituting a substantial amount in annual personal compensation. Mr. Gable is counting on the bonus to contribute to support tuition and expenses for his youngest daughter, who will be starting as a freshman in college next fall.
Questions
1.What are the ethical issues?
2.What should Albert Gable do?
Source: Prepared by Paul Breazeale, Breazeale, Saunders & O'Neil Ltd., Jackson, Mississippi. Drawn from the Ethics Case Collection of The American Accounting Association.
ETHICS CASE
Dear John:
I really appreciate your willingness to give me your opinion as a fellow professional accountant on what I should do, and on what I should advise the minority owner to do. Given that I was asked to help out Ruby, a family friend, and have found myself in the following situation, your advice is welcomed. Please take into account that I am not (and have not been) retained, nor am I being compensated in any manner related to the situation; I have not been providing accounting services in any shape or form related to the situation; and I have ensured that Ruby did seek
out accounting advice from another party as events unfolded.
Approximately three years ago, Jimmy, an owner of a small auto body shop, approached Ruby to give her a 10 percent equity stake in the shop and asked her to provide day-to-day management functions for the entity. Jimmy wanted Ruby to allow certain cash receipts to bypass the books of the shop, and in return Ruby would directly receive a commission on these transactions. We do not know if these amounts were claimed as taxable income by Jimmy, but it is possible. This cash bypass requirement was incorporated into the shareholders' agreement, signed by