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Accounting Firm Case Essay

Case 1: Sunrise bank recently appointed the accounting firm Smith, Godfroy, and Hannaford as the bank’s auditor. Sunrise quickly became one of Smith, Godfroy, and Hannaford’s largest clients. Subject to banking regulations, Sunrise must provide for any expected losses on notes receivable that Sunrise may not collect in full. During the course of the audit, Smith, Godfroy, and Hannaford determined that three large notes receivable of Sunrise seem questionable. Smith, Godfroy, and Hannaford discussed these loans with Susan Carter, controller of Sunrise. Carter assured the auditors that these notes were good and that issuers of these notes will be able to pay their notes after the economy improves.

Smith, Godfroy and Hannaford stated that Sunrise must record a loss for a portion of these notes receivable to account for the likelihood that Sunrise may never collect their full amount. Carter objected and threatened to dismiss Smith, Godfroy, and Hannaford if the auditor demands that the bank record the loss. Smith, Godfroy, and Hannaford want to keep Sunrise as a client. In fact, Smith, Godfroy, and Hannaford were counting on the revenue from the Sunrise audit to finance an expansion of the auditing firm.

Discussion questions: 1. What is the ethical issue in this situation? 2. What are the alternative decisions for Smith, Godfroy and Hannaford to consider? 3. Who are the stakeholders in this situation? what are the possible consequences to each stakeholder? Analyze from the following standpoints: (a) economic, (b) legal, and (c) ethical. 4. If you were the auditor, what would you do? How would you justify your decision?

Case 2: St Genevieve Petroleum Company is an independent oil producer in Baton Parish, Louisiana. In February, company geologists discovered a pool of oil that tripled the company’s oil reserves. Prior to disclosing the new oil reserves to the public, St. Genevieve quietly bought most of its shares back from current shareholders. After the announcement of the discovery of new oil reserves, the company’s share price increased from $6 to $27.

Discussion questions: 1. What is the ethical issue in this situation? 2. Who are the stakeholders? what are the possible consequences to each stakeholder? Analyze from the following standpoints: (a) economic, (b) legal, and (c) ethical. 3. Place yourself in the role of decision maker. What decision would you have made?

Case 3:

Corporate Social Responsibility (CSR) is the most discussed and debated topic in today’s business environment. Various arguments have been made regarding the relationship between firms’ social responsibility and their financial performance. One view is that firms face a tradeoff between social responsibility and financial performance. The contrasting view is that CSR improves firms’ financial performance ensuing in win-win model. The Baltazar, a chemical company, is considering whether it should maintain several socially responsible actions such as establishing environmental protection procedures, making extensive charitable contributions, promoting community development plans, and maintaining plants in economically depressed locations.

The CFO of Baltazar opposes such actions as he believes these actions deviate from the company’s economic goal and they will negatively affect the company’s financial performance. Discussion questions: 1. Explain your view of the social responsibility. 2. What are the potential costs (benefits) of having a low (high) level of social reasonability to a company? 3. Do you think the company should continue or dis-continue these socially responsible actions?

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