For each of the following situations, answer the following questions:

1. What is the ethical issue in this situation?

2. What are the alternatives?

3. Who are the stakeholders? What are the possible consequences to each? Analyze from the following standpoints: (a) economic, (b) legal, and (c) ethical.

4. Place yourself in the role of the decision maker. What would you do? How would you justify your decision?

Issue 1.

Daylight Bank recently appointed the accounting firm of Jones, Gilroy, and Franks as the bank’s auditor. Daylight quickly became one of Jones, Gilroy, and Franks’ largest clients. Because it is subject to banking regulations, Daylight must accrue for any expected losses on notes receivable that Daylight may not collect in full. During the course of the audit, Jones, Gilroy, and Franks determined that three large notes receivable seemed questionable. The auditors discussed these loans with Lisa Smith, the controller of Daylight. Smith assured the auditors that these notes were good and that the makers of the notes would be able to pay their notes after the economy improves. Jones, Gilroy, and Franks stated that Daylight must record a loss for a portion of these notes receivable to account for the likelihood that Daylight may never collect their full amount. Smith objected and threatened to dismiss the auditors if they demanded that the bank record the loss. Jones, Gilroy, and Franks wants to keep Daylight as a client. In fact, the firm was counting on the revenue from the Daylight audit to finance an expansion.

Issue 2.

Cari Morris is executive vice president of University Bank. Active in community affairs, Morris serves on the board of directors of The Salvation Army. The Salvation Army is expanding rapidly and is considering relocating. At a recent meeting, The Salvation Army decided to buy 250 acres of land on the edge of town. The owner of the property is Oliver West, a major depositor in University Bank. West is completing a bitter divorce, and Morris knows that West is eager to sell his property. In view of West’s difficult situation, Morris believes West would accept a low offer for the land. Realtors have appraised the property at $3.6 million.

Issue 3.

University Bank has a loan receivable from Stevenson Chocolates. Stevenson is six months late in making payments to the bank, and Joan Gus, a University Bank vice president, is helping Stevenson restructure its debt. Gus learns that Stevenson is depending on landing a contract with Twix Foods, another University Bank client. Gus also serves as Twix Foods’ loan officer at the bank. She is aware that Twix is considering bankruptcy. No one else outside Twix Foods knows this. Gus has been a great help to Stevenson, and Stevenson’s owner is counting on Gus’s expertise in loan workouts to advise the company through this difficult process. To help the bank collect on this large loan, Gus has a strong motivation to alert Stevenson of Twix’s financial difficulties.