Conflicting Clients: Business Law, Ethics, and Social Responsibility

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A sequence of financial disgraces which is peaked in the 2002 bankruptcy of the Enron Corporation revealed flaws in the business model and auditing system in the United States. The failure of the auditing system needed to review its positioning to deliver an untainted independence system from the client. The purpose of this paper is to examine and analyze the case study of conflicting clients focusing on the audit of Coshocton National Bank (CNB) and Fantastic Developments. The recommendation of how Jennifer Grace should handle the conflicts presented to her in this scenario will be shown in the paper as well.

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Conflicting Clients

The CPA, Ms. Jennifer Grace was hired by Coshocton National Bank (CNB) to audit their financial papers. The role of an outside auditor to provide an independent, expert opinion that can certify the truthfulness of a firm’s own financial reports. Independence is the only explanation for the existence of accounting firms which provide external audits. If they fail to provide independence, there would be no actual explanation for outside auditors to exist, as their role would be adding redundancy to those of a firm’s inside auditors. Therefore, Ms. Grace’s role is inevitable to CNB’s working process thus her morale and ethical standards must be beyond reproach. First of all, Ms. Grace must take all necessary action as the independent auditor in her current assignment to get evidence which can resolve all the doubts she had about both parties, CNB and Fantastic Developments in which any type of fraudulent activity has been carried out. She should have audited their accounting books earlier so that she could have complete another audit again. Also she needed to make sure to avoid using any specific information which she gained during her audit activity however she could utilize the general information which is available to public for comparison. She needs to be very alert while doing an audit for Fantastic to make things are very clear and fairness. Her responsibilities are to take action as an overall ethical issue which includes whether she should utilize information she has previous knowledge of from her earlier audit during her current assignment or not. It was wrong to use information obtained from one client for an audit of another client as this is contrary to the principle of confidentiality under normal circumstances which touched the ethical issue violating the confidentiality agreement. However, she is under obligation to complete the current audit as it’s laid down principles and procedure and complete it by certifying its fairness. There are standards of independent accounting audit ethics and in 2002 Congress passed the Sarbanes-Oxley Act to prevent the financial scandals that had previously took place at Enron and WorldCom. The Act includes a number of stipulations designed to increase auditor independence.

It’s noted that although this Act is in place not everyone will make decisions in the same way, using the same information, employing the same decision rules. Instead decisions will vary from person to person and also they may view facts and circumstance differently at a glance even though they appear similar on the surface. Human nature, people’s background, and judgments will all come into play when dealing with morale and ethical decisions. Ms. Grace’s decision must take into consideration what is just and fair. It must not be biased due to someone’s personal information or interest. It must balance the interest of all stakeholders. These stakeholders include customers of the banks, Fantastic Developments customers, her CPA firm customers, bank stockholders, Fantastic stockholders, CPA firm stockholders, CNB stockholders, Fantastic Developments stockholders, and the CPA firm, CNB, and Fantastic Development Inc. Ms. Grace needs to perform her duties according to the procedures and principles and not by personal emotions or information. In order to maintain a level of integrity in the independent auditing process she needs to be unbiased towards either parting and do her work with the upmost honesty and morale ethics.

In conclusion, from the case study we can see that the issue of ethics is highly critical and severely impacts the lives of people. CPA’s are expected and required by law to be highly ethical in their roles and understand the implications of immoral behavior. Professional face ethical dilemmas in their day-to-day jobs and it’s very important that ethics is never compromised. Doing so benefits them personally, the organization they work for, and also the society at large.

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