Assignment: Time for a Decision
Abstract
In the following case a new auditor feels under pressure to report time that does not exceed a high- stretch budget, even if the audit task takes more time than budgeted. It provides an opportunity for students to make a decision with ethical dimensions. Students also can debate whether the cultural setting makes a difference. It also reviews some budgeting concepts.
I. Situation
After graduating as an accounting major from a large university, Ryan was excited to start his career at Moore & Associates CPAs, an international professional services firm. The firm has offices in eight countries and offers assurance, tax and consulting services. Ryan had made an intense effort to get his job in a time of economic uncertainty and high unemployment. He knew that it would be an important first step in his career, and looked forward to gaining valuable experience. After a week of orientation and training, he was sent to the firm's largest audit client in New York City.
It was a sunny Monday morning in January 2019, and his first assignment was to audit the Cash Account. He liked his immediate supervisor Merissa Lind, and at first, things went well. However, at the end of the week, he started to notice some strange rumblings amongst the staff. Word was that the client had demanded a 15 percent fee cut from all their vendors, including their auditor.
On Monday afternoon (the sixth day of the audit), Merissa called him to her desk. Merissa said, "The audit partner has cut my time budget by 15 percent. This puts considerable pressure on our audit team. I had given you a time budget for cash of 160 hours, which was the amount of time required in the prior year. I am counting on you to get the job done in 136 hours."
Ryan tried to be as efficient as possible while auditing the cash account, but he also wanted to be thorough and not miss any discrepancies. By Wednesday afternoon, he concluded that it was unrealistic to do less work than last year and maintain audit effectiveness.
He discussed his view with Merissa at 4:30 PM on Wednesday. In responding, Merissa seemed sympathetic. She said, "I can see your point. However, our performance evaluations will be based on staying within the bounds of the revised time budgets. I want you to get the job done in 136 hours." Ryan interpreted this message as do not report more than 136 hours.
II. Time for a Decision
Ryan worked until 8:30 PM on Wednesday. He did not get paid for overtime. Ryan had planned to spend two or three hours studying for the CPA exam, but he was too tired. Also, he was worried. Ryan's views on the time budget had not changed. He realized that he had to decide what to do by Thursday morning.
Ryan is concerned that he will not be able to confirm the cash balances with all of the banks and finish the cash audit program without going over budget. Should he bring this to the attention of Merissa again? Or, should he go over her head and talk to the audit manager, who may also be focused on promotion to partner and concerned with audit time budget as well? Ryan does not want to get Merissa, or him, in trouble.
III. Required
1. Why do firms use time budgets? What is a high-stretch budget?
2. Identify at least three alternatives that Ryan should consider. Discuss the alternatives and factors that Ryan should consider in making his decision. In your discussion, give consideration to using an ethics model. Examples of ethics models or guidance are listed in Appendices A and B.
3. What should Ryan do? Explain why the alternative that you selected was preferable to the others.
4. Would your decision be influenced if Ryan's discussions with some staff accountants who were hired last year reveled that underreporting time was a common practice in the firm. According to the grapevine, some partners underreported time.
5. Would your analysis (including consideration of cultural factors) and decision be different if Ryan was an expatriate working at an audit firm in:
a. Berlin Germany?
b. Shanghai, China?
The Geert Hofstede Cultural Dimensions model (see Appendix C) may be helpful.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.
Attachment:- Appendix.rar