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Running head: ACCOUNTING ETHICS – DILEMMA 1
Accounting Ethics – Dilemma
Joe R. Estrada
Liberty University
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Dilemma 1: A CPA has been selected as the auditor for a federally subsidized
housing complex. The engagement contract required that such audits be in compliance with
government audit standards as well as generally accepted auditing standards. The CPA is
unfamiliar with the particular government audit requirements but conducts an otherwise
satisfactory audit, in accordance with generally accepted auditing standards, and is
considering issuing an unqualified report.
In the Generally Accepted Accounting Standards (GAAS), it is allowed for auditors to
issue an unqualified report after they have gathered adequate evidence (Delaney & Whittington,
2010). In addition, the report needs to be in accordance with GAAP standards and follow a
particular format where there are an introduction, scope, and opinion. The CPA unfamiliarity
with government auditing standards is the source of dilemma. The dilemma can be resolved by
employing the acceptance of client criteria where an audit firm accepts to audit a particular client
if they (audit firm) meets a specific criterion.
The first criterion is the independence of the audit firm. The audit firm needs to be free
from anything that would create a conflict of interest in auditing the client such as influence from
external forces to act in a particular way. Secondly, the management of the audited firm should
exercise high levels of integrity to avoid tarnishing the reputation of the audit firm due to the risk
of association (Johnstone, Gramling & Rittenberg, 2015). Most importantly, the audit firm needs
to establish its technical capacity to handle such a client. Some of the considerations include
enough workforce, ability to meet deadlines, knowledge, and experience in the industry, and
knowledge in the accounting standards. As the CPA lacks the technical expertise in government
auditing requirements, it would be prudent to call upon external auditors, a specialist, that is
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knowledgeable in the area of government auditing requirements for support and consultancy
(Neal & Riley, 2004).
Principle IV of the AICPA code of professional conduct requires all licensed professional
accountants or auditors to observe standards of due care. This standard requires professionals to
adhere to the profession’s ethical and technical standards. The CPA is required to carry out the
auditing services with diligence and competence. The lack of experience and technical expertise
in the government accounting requirements demands that the professional not assume the
responsibility if they do not have adequate judgment, experience, and education.
Dilemma 2: A CPA is considering organizing a corporation to provide billing
services for local MDs. The corporation would be in a separate office. The CPA claims that
this type of service does not constitute the practice of public accounting and therefore its
operations are not bound by the institute’s professional ethics.
Billing services constitute the practice of public accounting due to the financial
accounting involved. The billing audit comprises of areas such as clinical, financial and policy-
related. The CPA is arguing that the billing practice is not subject to public accounting due to the
clinical component, which is usually the focus in a billing audit. The financial components have
to be audited, such as accounts receivable ledger and receipt of payments. The dilemma can be
solved by conducting due diligence on what constitutes public accounting and what does not.
Due diligence is a safe and more prudent approach compared to trying to evade by providing a
separate office that deems to provide billing services for the local MDs. The repercussions are far
much worse if the business is deemed illegal as the CPA might even be stripped their license for
trying to circumvent regulations.
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Principle III of AICPA professional code of conduct requires registered professional
accountants to perform their responsibilities with the highest sense of integrity. Integrity merely
is about honesty and conducting oneself in accordance with ethical and professional codes. The
principle requires accountants to serve the public selflessly by avoiding personal gain an
advantage (Duska, Duska, & Ragatz, 2011). The CPA is trying to take advantage of the public by
creating a separate office for billing services that is not governed by public accounting standards.
The code clearly states that the “circumvention of the technical and ethical standards constitutes
subordination of judgment” (AICPA, 2011). The CPA should exercise integrity should perform
the auditing and accounting duties with freedom of doubt.
Biblical Perspective
The best clients relationships are those that expand on common regards and
interdependent. At the point when one’s business clients get as much out of their business
relationship with your organization than both the client and the business owner win. A genuine
client partnership incorporates a full comprehension of the client’s business, and a promise to
service at quality standards that meet or surpass the client’s desires, according to 2 Corinthians
8:21 “We are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes
of man” (NIV). An eagerness to adjust services, and practices to oblige a customer' specialty
needs. Everything begins with trustworthiness and trust. Talk with clients about each other
strengths and shortcomings, and framework an arrangement for working successfully together,
Amos 3:3 states “Do two walk together unless they have agreed to do so” (NIV). By investing in
one's clients relationships, they will last and remain stable.
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References
AICPA. (2011). Article III – Integrity: ET § 54.03, Code of Professional Conduct and Bylaws.
American Institute of Certified Public Accountants. Retrieved from:
https://www.aicpa.org/content/dam/aicpa/research/standards/codeofconduct/downloadabl
edocuments/2011june1codeofprofessionalconduct.pdf
Delaney, P., & Whittington, R. (2010). Wiley CPA examination review, outlines and study guides.
Hoboken, N.J.: Wiley.
Duska, R., Duska, B., & Ragatz, J. (2011). Accounting ethics (2nd ed.). Malden, MA: Wiley-
Blackwell a John Wiley & Sons, Ltd., Publication.
Johnstone, K., Gramling, A., & Rittenberg, L. (2015). Auditing: A Risk Based-Approach to
Conducting a Quality Audit (10th ed.). Boston, MA.: Cengage Learning.
Neal, T. L., & Riley, R., Jr. (2004). Auditor industry specialist research design. Auditing, 23(2), p.
169-177. Retrieved from http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/216732823?accountid=12085
