Alpha Electronics - Carol Williams Case Study

• Carol Williams found an error in Alpha Electronics taxes that understated income tax by $10,000.

• Carol suggests that Randy, the owner of Alpha Electronics, file an amended tax return to correct the error.

• Randy does not want to file an amended return, however he wants to understate his tax deductions by $10,000.

• Carol researches amnd finds she can not file an amdnded return without her client’s permission.

• Carol speaks with Randy about the difference in the tax rates from last year ro this year, Randy insists he wants to just understate his deductions for this year.

• Stakeholders

i. Owner of Alpha Electronics, Randy

ii. Former Accounting Firm

iii. IRS

iv. Carol and the accounting firm she works for

• Ethical Issues

i. Reporting correct information on financial statement vs. Abiding client’s wishes and falisying this years tax documents

• Should Carol misrepresent the information in this year’s tax documents to makeup for the understatment in last year’s tax reporting to “equal out” the misrepresentation.

ii. Reporting error to IRS vs. working in client’s best interest

• Should Carol report the error to the IRS although she is not obligated to do so.

iii. File an amended return vs. under reporting tax deductions

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• Major Principles

i. Finanical information is reliable- information listed in financial statements should be accurate and reliable.

ii. Financial information is verifiable- information should be able to be verified by those who have a basic knowledge of accounting.

iii. Matchig Principle- information should be disclosed in the same period the expense was incurred.

iv. Full Discoluser Principle- all information should be reportred that would make a difference