Tim Carswell has recently graduated from his state university, majoring in accounting. He has taken a job with a medium-sized firm that offers financial accounting, audit, and consulting services to retailing firms across the United States. The company, Howard & Partners, is well-respected in its niche field, so its percentage of consulting is a significant and profitable aspect of its overall business model.

Tim has been assigned to help on the audit of one of the firm’s major customers, Charlie’s Electronics. Charlie’s has grown from a single store 10 years ago to more than 50 retail outlets in the Northeast U.S. today. Charlie’s has used Howard & Partners as both financial accountant and auditor. Howard & Partners cannot be a formal consultant to the company due to federal regulations arising out of the
Sarbanes-Ox ley A ct.

Late one afternoon, Tim watches the manager on the job as he is called into Charlie’s office. Charlie does not pull out any of the company ’s financial statements, but instead seems intent on asking specific questions of the manager, Perry Cartwright. Tim then sees Perry come back to his computer and pull up some consulting files that were used at one of Charlie’s competitors for a job Tim was on just a week ago. Perry walks back into Charlie’s once and spends the rest of the day going over the consulting report with Charlie.

Tim is very concerned, but when he asks Perry about it, Perry replies, “We’ve been doing this for Charlie for years now. It is just part of the extras we provide him. We’re not breaking any laws because we’re not directly doing consulting for him, we’re just providing a little informal input to help him make better decisions as he expands the chain. It’s a win-win situation, so don’t worry about it.”

REQUIRED:

Analyze the situation Tim is facing based on the IMA Statement. Even though Tim is doing financial accounting work today, he also does consulting so the IMA Statement applies to him every day. Is what Perry is doing wrong? Why? What recommendations would you make to Tim in this situation?