This assessment item assesses the following learning outcomes and AoL goals:
PC3.1 Professionally communicate accounting and legal knowledge, advice and recommendations in written forms to both accountants and non-accountants.
TS4.2 Apply teamwork knowledge and skills to work effectively with others across diverse accounting purposes and contexts.
SE5.1 Demonstrate and apply knowledge of ethical and regulatory perspectives relating to professional accounting.
Queensland University of Technology
Business School
School of Accountancy
AYB301 – GROUP PROJECT 1/2014
Ethical Dilemma: What should Auditor David do?
David Brown has just been employed by the mid-tier auditing firm of Crawford & Associates (C & A). David is very excited about being employed by C & A as previously he had worked for 2 years with a smaller audit firm and will now receive a $10,000 increase in remuneration and be involved in larger audits. The extra money will be extremely useful to David as he intends to get married at the end of the year and plans to buy a house with his wife soon after that.
David has been asked to take the role of ‘audit manager’ for the financial year end audit of Marburg Appliances Ltd (MAL) a white goods company which is situated in Brisbane and is listed on the Australian Securities Exchange (ASX). In compliance with the Corporations Act 2001 the lead audit partner on the MAL audit has been replaced after five years by Michael Thompson, who is not very familiar with the ‘white goods industry’. However, audit testing programs and documentation for prior years are quite robust and the audit results have been relatively free from any significant items of concern, hence unqualified audit reports have been issued by C & A for the previous five years.
MAL’s warehouse is situated next to a ‘24 hour Get Fit’ gym, which offers the staff of MAL discounted yearly gym memberships. The Chief Financial Officer of MAL, Penny Yang, has offered David one of these memberships. In discussions with David Penny has also strongly suggested that the Directors of MAL would like the audit work finished in six weeks and the independent auditor’s report signed off before 15th August 2015, as the Annual General Meeting has been scheduled for 21 days after that. David is aware that normally the audit of MAL takes at least 2 months. Penny also mentioned that 10 months ago MAL employed a new warehouse manager Joe Miller, who was inexperienced at dealing with such a large volume of purchases and sales. However MAL were happy with Joe’s performance, he always turned up for work on time and has not had a ‘sick day’ since he commenced employment.
David is keen to ‘prove himself’ and initially the audit proceeds well and David earns the respect and trust of MAL senior management. Then David discovers that MAL does not employ the perpetual inventory system for the requisition and sale of white goods. Furthermore there is only a general ledger for inventory and no subsidiary ledgers for the different types and models of white goods sold by MAL. Although David did attend the stock-take of inventory at year end and was happy with the ‘count’ he noticed that a number of ‘dish washers’ looked as if they had been sitting around for some time, ie. covered in dust and some had dents (which appeared to be damaged goods). However David is unsure whether these dishwashers should have been returned to a supplier (purchases returns) or are goods returned from customers (sales returns). The balance of inventory makes up a considerable percentage (40%) of the total assets of MAL.
David is concerned about these issues and decides to discuss the matter in more detail with Penny, as he will need to obtain evidence of the original transactions to ensure the financial accounts are ‘true and fair.’ Penny assures David that all the transactions have been accounted for correctly and the valuation of inventory on balance sheet is correct. Furthermore she tells David that going back to the original transactions will take too long and the audit will not be finished in 6 weeks, she adds: “you and Michael Thompson are both new on MAL’s audit job and if the audit is not finished in 6 weeks and the report is ‘unqualified’ MAL will change its’ audit firm.” David is extremely concerned by this, but concedes that what Penny says is correct, neither he nor Michael have been involved in this audit before and perhaps in previous years these issues were not questioned. Then David remembers a friend from university (Peter) who went to work for a very large white goods retailer in Melbourne, perhaps if David gives him a ring he can advise David what he should do.
Required:
1. Form groups of 3 students within your tutorial group and decide on a group name.
2. Using the six step ethical framework from your lecture 2 materials resolve this ethical dilemma for David. What should David do?
3. Your answer should be written in a ‘clear and concise manner’ and include:
(a) a brief introduction,
(b) the six step process applied to David’s dilemma with appropriate headings for each step,
(c) the 6th step should provideone recommendation (the one your group considers the best in relation to the ‘principal ethical issue’ of the case). Your recommendation must be fully justified.
4. Your project should show that you have demonstrated a social and ethical understanding,have effectively and professionally communicated your response and that you are able to work in a professional manner in a team.
5. Each individual member must complete a Group Work Reflections Sheet to be handed in to your tutor individually (confidentially).
