Auditing Study

Auditing Case study 1

Fangzhou Yang

09/13/2015

CPAs in public practice often find themselves facing challenging: troubles and ethical dilemmas. In this case, we can see how Mr. and Mrs. Forehand, the owner of a small accounting firm, deal with these dilemmas. Under a recession economics situation, they are facing problems how to alive in this situation and should they forbid the ethical standard to get some new clients?

Forehand, the owner of the small accounting practice was facing a difficult situation since his investment on stocks had tanked and his business was poor due to the recession. One day, Jones came in and told him that he want to open a business in contracting, however, with no experience. Jones had no idea how to make profit, and asked Forehand for a financial report with all files to IRS with an unachievable goal of $20,000 cash in per month, which seems impossible. And Jones prepaid $2,500 and promised a $100/hour working pay.

At the day Jones came to pick the report, he said to Forehand that he didn’t need accountant anymore, and he made a deal with Forehand. The deal is that he borrowed $120,000 from Forehand and set cash $135,000 as collateral for using the money and paid Forehand more as interest. At last, Forehand accepted the offer. However, at the ninth month, FBI came in and told Forehand that Jones’ money was from an illegal sale of drug, and he also arrested because of the money laundering. At the court Forehand claimed that he did never know where Jones’ money came from, but it didn’t help. He was sentenced for 6 years with huge number of money penalty.

This story is impressive. I do know that the owner of the small accounting practice Forehand, was facing a serious problem: he lost his investment on stocks, he didn’t get enough business for the practice and he even dismissed two of six employees. When new client Jones, came in with a big deal, lots of people facing same situation may get excited. However, as a CPA, the basic rule is ethics standard. In this case, Forehand didn’t investigate in Jones’ money, but trusted in his own words. Though he noticed that Jones had no experience of business, he accepted the unrealistic and profitable deal. For a CPA, especially an auditor, you should always keep skepticism in your mind; even you are facing some trouble. At last, Forehand paid the price for his irrational decision.