AICPA Guidance for Resolving Ethical Dilemmas in Accounting: A Case Study Analysis, Assignments of Accounting

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Tina Skinner DeVry University ACCT Current Issues in Accounting Professor Kuhn November 20, 2024

Week 4: ACCT 525 AICPA Guidance for Resolving Ethical Dilemmas Ethical dilemmas present challenges that test individuals' integrity, values, and professional standards in any profession. In accounting, where trust, transparency, and adherence to ethical standards are paramount, effectively resolving such dilemmas is crucial. The American Institute of Certified Public Accountants (AICPA) provides a structured framework to assist its members in navigating ethical dilemmas, ensuring they adhere to the profession's core principles (AICPA, 2014). This essay will explore the AICPA guidance for resolving ethical dilemmas by analyzing a fictitious scenario in which an accountant, Nicole, faces a financial misrepresentation issue at Skintin Corp. Using this example, the application of the AICPA’s Code of Professional Conduct will be discussed to demonstrate how ethical challenges can be resolved in accordance with professional standards. Financial Misrepresentation at Skintin Corp Nicole is a Certified Public Accountant (CPA) working as a senior accountant at Skintin Corp, a mid-sized tire manufacturing company. Nicole notices discrepancies in the company's financial statements as part of her routine work. She discovers that her supervisor, Donny, has intentionally overstated the company’s revenue to meet earnings targets and secure a performance bonus. Upon confronting Donny about these discrepancies, he dismisses her concerns, suggesting that these adjustments are a common practice done to protect the company’s reputation. Donny further implies that Nicole should refrain from reporting the issue, as it could jeopardize her job security. Torn between her professional obligation to report financial irregularities and the fear of retaliation, Nicole finds herself facing a significant ethical dilemma. This situation exemplifies the kind of ethical challenges faced by accountants in their daily practice. In this case, Nicole must balance her responsibility to uphold the public trust

Week 4: ACCT 525

1. Integrity and Objectivity (Rule 1.100.001) : This rule requires CPAs to maintain objectivity in all professional judgments and avoid knowingly misrepresenting facts. Nicole’s duty to report the misrepresentation is guided by this principle, which mandates transparency and honesty in her professional dealings (AICPA, 2014).
2. Acts Discreditable (Rule 1.400.001) : This rule prohibits CPAs from engaging in or being complicit in unethical or illegal acts that discredit the profession. Donny’s actions fall under this rule, as the misstatements could lead to legal repercussions for both him and the company. By not addressing the issue, Nicole could be seen as complicit in discrediting the accounting profession (AICPA, 2014).
3. Confidential Client Information (Rule 1.700.001) : While confidentiality is essential in the accounting profession, the rule allows for disclosure when necessary to correct errors or comply with legal obligations. Nicole’s concern regarding confidentiality must be balanced against her responsibility to report the error to ensure accurate financial reporting and compliance with regulatory standards (Leibowitz & Reinstein, 2009). These rules form the foundation for Nicole’s decision-making process and guide her toward an ethical resolution of the dilemma. Step 3: Evaluate the Ethical Conflict The AICPA encourages accountants to evaluate ethical conflicts from various perspectives, considering the consequences for different stakeholders. In this case, the potential outcomes of Nicole’s actions include:

• Financial Losses : Misleading financial statements could lead to incorrect decisions by investors, creditors, and other stakeholders. Investors may make investment decisions based on inaccurate data, leading to financial losses for them and possibly damaging Skintin Corp's reputation (AICPA, 2023).

Week 4: ACCT 525

3. Whistleblowing : Nicole could report the issue to external regulators or use whistleblower protections under laws like the Sarbanes-Oxley Act.

• Pros: This ensures that the financial misstatements are corrected, and that external oversight is brought to bear (Leibowitz & Reinstein, 2009). o Cons: Whistleblowing could lead to career damage, including job loss and strained relationships within the company.

4. Resignation : Nicole could choose to resign from her position to avoid complicity, though this would not address the ethical breach at Skintin Corp. o Pros: Resignation would maintain Nicole’s personal integrity. o Cons: This does not resolve the issue and may leave the company to continue engaging in unethical practices. Step 5: Consult with Others The AICPA emphasizes the importance of seeking advice when resolving ethical dilemmas. Nicole could seek guidance from:

• AICPA Ethics Hotline : Provides confidential advice on how to navigate complex ethical issues, offering professional guidance to ensure Nicole acts in compliance with ethical standards.
• Legal Counsel : Nicole could consult with an attorney to understand the legal implications of her actions, particularly regarding whistleblower protections.
• Professional Peers : Nicole might also seek advice from other professionals in her network to gain different perspectives on the situation (AICPA, 2014). Step 6: Take Appropriate Action After evaluating the options, Nicole must act in a manner consistent with the AICPA Code. The best course of action may involve escalating the issue internally, starting with higher management or the audit committee. Nicole should consider whistleblowing to

• Week 4: ACCT
• Week 4: ACCT

Week 4: ACCT 525 AICPA. (2014). AICPA Code of Professional Conduct. https://pub.aicpa.org/codeofconduct/ethicsresources/et-cod.pdf AICPA. (2023, October 12). AICPA Conceptual Framework Approach. Www.aicpa- Cima.com. https://www.aicpa-cima.com/resources/article/aicpa-conceptual- framework-approach Leibowitz, M., & Reinstein, A. (2009, April 1). Help for Solving CPAs’ Ethical Dilemmas. Journal of Accountancy. https://www.journalofaccountancy.com/issues/2009/apr/20081358.html