- Ethically it is difficult for Ms Ashley to decide whether to report Model’s Inc or not. Moreover, she is now aware that her accounting head of the company, Mr.Viccio and her Senior, Frankie Small are also trying to abate with the defaulting company. Since almost everyone involved in this case is trying to bypass the regulations and show the company in good books, it is now an ethical dilemma for Ms Ashley about whether to accept the deeds or to report them with the concerned authority.
According to the Rule 102 of the AICPA Code of Professional Conduct, an accountant is guided to not knowingly misrepresent facts or subordinate his or her judgment to others. In the case presented, since both of these are happening – misrepresenting of the facts and subordination of judgment – it is a moral dilemma for Ms Ashley here whether to go along with it or to report it all to the concerned authorities.
Further on, according to the SOX (Sarbanes-Oxley Act of 2002) and IFAC (International Federation of Accountants) reforms, professional accountants are expected to first and foremost keep in mind the interests of the stakeholders of the company, before considering their responsibility towards the client or the employer. In this case, since all external stakeholders such as the shareholders, creditors, debtors and other employees are all being misguided by the facts and figures that are being manipulated by the management of Models Inc, it is a moral responsibility for the accountants involved to report the matter to the concerned authorities.
- According to AICPA current code of professional conduct, the accountants are required to report all discrepancies to the concerned authorities. More so, where the stakeholders are the ones being denied of justice or the truth. Hence, in the case presented to us, since all the stakeholders, apart from the owners of the company, will suffer from the consequences of misrepresentation of the facts, it is in greater good as per AICPA Code of Professional Conduct to report the company and the auditing company both to the concerned authorities. However, in almost all cases these days, there are non-disclosure clauses that require the accountants to maintain silence or confidences with respect to the client information and facts. Nevertheless, in the wake of recent developments in cases regarding misrepresentation of facts, the new codes prescribe that “confidences not be divulged unless in a court of law or when required by the discipline process of profession.”
A process is prescribed by the AICPA Code of Ethics that tells that the accountant must first approach the management. If the management is unable to resolve the issue, the issue be brought to light to the Board of Directors (BOD) of the company. If the BOD does not inform the SEC within a day of the discrepancies being reported, the auditor is free from all confidentialities and can report to the SEC himself/herself under the section 10A of Securities Exchange Act 1934.
- Ms Ashley does not necessarily need to resign from the firm. In case where she is ready to neither disclose the details of misrepresentation nor willingly be a part of it, she can simply refuse to be on the auditing team for that firm. Nevertheless, if her moral values and responsibilities as guided by the AICPA Code of Ethics do not allow her to be satisfied with just that, she can decide to quit from the auditing firm. She must however keep in mind that quitting from her job will not allow her to disclose the cause for her quitting when she appears for interviews for her next job as the non-disclosure agreements bar her from delving the details to the world outside.
- As mentioned above, if the management or the Board of Directors of the company fails to act when the case of misrepresentation is reported to them, the accountant is free to report the issue to the SEC or the regulating body such as NJ State Board of Accountancy.