comment

Q1 

The ethical issue revolves around downward revision of useful life estimates for depreciable assets. The senior audit accountant, Mike Crane, is being pressured to change the estimates for useful life for certain assets below 50% of currently used values. This is in ethics problem for at least one major reason: lowering the life estimates of assets results in a differing amount of depreciation being claimed. Less depreciation means less expense and consequently higher incomes.

Q2

Mostly the public is impacted by this decision. Changing income and retained earnings through asset revaluation is misleading to investors and the public.

Q3

Crane should carefully address concerns about the revisions. First as senior auditor he is likely to be responsible for the eventual audit opinion being issued. Thus he should reserve judgement about the quality and integrity of the financial statements until he irons out the situation. By placing conditions on the audit, Crane may hold up the audit. However being careful is an important part of the process.