Waverly Edward Holland, III, grew up in sunny Tucson, Arizona, but his heart was always in the mountains of Colorado. From the age of three, “Dutch” spent at least one week each winter at Aspen, Breckenridge, Vail, or some other Colorado ski resort with his family. He loved the weather and the quaint atmosphere of the small mountain resort towns but mostly he loved to ski. By the age of 16, Dutch had decided that he would pursue a career that would allow him the opportunity to indulge the sport that he loved. Thanks to his pragmatic parents and a thoughtful high school counselor, Dutch’s career objective eventually evolved from being a “ski bum” to becoming involved in the management of a ski resort.1 During his annual ski excursions while in high school, Dutch discussed his career goal with several management personnel at major ski resorts. With those individuals’

help, Dutch developed a master plan for accomplishing that goal. Since one of the ski resort managers he interviewed had convinced him that a thorough knowledge of accounting would be extremely helpful in managing any business, including a ski resort, Dutch decided to major in accounting at the University of Arizona. Making that decision even easier was the fact that occupational aptitude tests he took in high school indicated he was well suited for accounting.

Dutch planned to take a one-semester “sabbatical” during his undergraduate program to work as an intern or “gopher” at a ski resort. After completing his accounting degree, Dutch would work for a few years in the accounting profession before returning to college to earn an MBA specializing in resort or hotel management. With that background, Dutch believed that he could obtain a management trainee position with a major ski resort. By the age of 26, Dutch was well on his way to completing his master plan. After earning an undergraduate degree in accounting at the U of A, Dutch accepted a staff auditor position with a major accounting firm. Dutch chose auditing because he believed it would give him a thorough understanding of “real world” accounting and internal control issues that he would need as a future business manager. During his third year in public accounting, Dutch took the GMAT exam and applied to several universities that had MBA programs tailored to his specifi c career interest. After being admitted to the program that was his top choice, Dutch gave his employer notice that he would be leaving the firm a few months later.

Midway through his first semester of graduate school, Dutch was elated when he learned that he had been accepted for a management internship program at a large ski resort he had visited several times in the past. Dutch realized that he would likely be offered a full-time job with the resort when he finished the three-month internship program the following summer. That full-time position would begin when he completed his MBA degree the following spring. We have all known individuals who seem to lead charmed existences in which their lives unfold as they have scripted them. Dutch Holland was one of those individuals. But Dutch’s charmed life suddenly became more complex and less predictable a few months after he left public accounting. One late November afternoon Dutch’s phone rang while he was studying in his apartment. The caller identified himself as Robert Chope, an attorney for a law firm in a nearby metropolitan area. Chope told Dutch that his firm was representing the plaintiffs in a class-action securities lawsuit to be fi led in a matter of days against Padova & Vicenza, a large public company involved in the apparel industry. The lawsuit would allege that Padova & Vicenza had intentionally and materially misrepresented its financial condition and operating results over the past three years. Dutch was well aware of Padova & Vicenza since the manufacturing company was one of the largest audit clients of his former employer. In fact, Dutch had spent three years assigned to the audit engagement team for Padova & Vicenza. The final year, Dutch had served as the principal audit senior on that team. When Chope used the phrase “class-action,” Dutch winced in pain. Among the greatest fears of an auditor is for a client or former client to be the target of a classaction lawsuit predicated on material fi nancial statement misrepresentations. If the company’s audit firm is named as a co-defendant in such a lawsuit, the audits of that client will be subjected to painstaking scrutiny by both plaintiff and defense attorneys.

Dutch had enjoyed the three years that he spent in public accounting. Unlike many of his college friends who had accepted entry-level positions in other fi elds following graduation, Dutch had seldom been bored as an auditor. He had found the wide range of businesses, accounting and control systems, and technical issues that he had been exposed to stimulating and rewarding. Granted, on many occasions he had felt as if he was “in over his head” given the challenging assignments that his fi rm continually gave him. He had subdued those brief anxiety attacks with the realization that his fi rm had an impressive support network that included both extensive technical resources and helpful, sympathetic, and encouraging colleagues and superiors. Dutch had enjoyed the challenges and camaraderie of public accounting so much that he had briefl y reconsidered his planned career path as he neared completion of his three-year stint as an auditor. But the lure of Colorado’s ski trails had prevailed and kept him from extending his time in public accounting.

The only major downside of public accounting, at least in Dutch’s mind, had been the ever-present fear of “screwing up” by overlooking material errors in a client’s financial statements. That concern had loomed over every audit to which Dutch had been assigned. In looking back on his three years in public accounting, Padova & Vicenza was the only former client that Dutch had some lingering questions regarding the material accuracy or fairness of its periodic fi nancial statements. Those lingering questions immediately fl ooded back into Dutch’s mind that November afternoon when Robert Chope mentioned the lawsuit to be fi led against Padova & Vicenza. During the three years that Dutch had served on the Padova & Vicenza audit engagement team, the company had been in chronically poor financial condition.

For more than a decade, the company’s operating results had been deteriorating in the face of stiff competition from foreign companies. Those foreign competitors had a lower cost structure than Padova & Vicenza due to the considerably lower wages they paid to their non-union workers—each of Padova & Vicenza’s four production facilities was unionized.

Questions

1. How do you believe that Dutch Holland resolved the dilemma that he faced? Do you believe that he met with Robert Chope? Why or why not? Place yourself in Dutch’s position. What would you have done? Explain.

2. Identify the ethical issues that Dutch faced. How should he have addressed or dealt with those issues?

3. Do you believe that Clayton Morris dealt appropriately with Dutch during their telephone conversation? Defend your answer.