John Wang is a junior partner and training manager at Miller Dundas, a medium sized firm of auditors. He oversees the progress of the firm's student accountants. One of those under John's supervision, Lisa Xu, recently wrote in her progress and achievement log about a situation in an audit that had disturbed her.
On the recent audit of Mbabo Company, a medium sized, family-run business and longstanding client of Miller Dundas, Lisa was checking non-current asset purchases when she noticed what she thought might be an irregularity. There was an entry of $100,000 for a security system for an address in a well-known holiday resort with no obvious link to the company. On questioning this with Ellen Tan, the financial controller, Lisa was told that the system was for Mr Martin Mbabo's holiday cottage (Martin Mbabo is managing director and a minority shareholder in the Mbabo Company). She was told that Martin Mbabo often took confidential company documents with him to his holiday home and so needed the security system on the property to protect them. It was because of this, Ellen said, that it was reasonable to charge the security system to the company.
Ellen Tan expressed surprise at Lisa's concerns and said that auditors had not previously been concerned about the company being charged for non-current assets and operational expenses for Mr Mbabo's personal properties. Lisa told the engagement partner, Potto Sinter, what she had found and Potto simply said that the charge could probably be ignored. He did agree, however, to ask for a formal explanation from Martin Mbabo before he signed off the audit. Lisa wasn't at the final clearance meeting but later read the following in the notes from the clearance meeting: 'discussed other matter with client, happy with explanation'. When Lisa discussed the matter with Potto afterwards she was told that the matter was now closed and that she should concentrate on her next audit and her important accounting studies.
When John Wang read about Lisa's concerns and spoke to her directly, he realised he was in an ethical dilemma. Not only should there be a disclosure requirement of Mr Mbabo's transaction, but the situation was made more complicated by the fact that Potto Sinter was senior to John Wang in Miller Dundas and also by the fact that the two men were good friends.
Required:
(a) Explain the meaning of 'integrity' and its importance in professional relationships such as those described in the case.
- Key words for integrity
- Why integrity is important as accountant
- Why accountant need to be integrity compare to others?
(b) Criticise Potto Sinter's ethical and professional behaviour in the case.
- looking what kind of threats (quote from case situation)
(c) Critically evaluate the alternatives that John Wang has in his ethical dilemma.