Arthur was reluctant to falsify his time report, but he justified his action on the basis that he was new and inexperienced. He also said that the extra ten hours was a learning experience. Also, no one would know that he had completed the time report incorrectly since Arthur had a reputation for having high integrity. At the conclusion of the Pine Crest audit. Arthur received a glowing assessment from lonathan Lee, the addit seniot, as well as Stella Reese. Arthur's performance on the next two jobs was also of a high caliber, and he was promoted to intermediate staff accountant at the end of the year. Ms. Johnson, the senior partner at CG, had gone out of her way to congratulate Arthur on his work ethic and say how pleased she was that he was part of the CG farmily. The following February, Arthur was called inte a meeting to discuss the upcom. ing Pine Crest Furniture audit to be conducted next month. In the meeting were Jonathan Lee, Stella Reese, and the three other staff accountants who had been en the Pine Crest audit last year. "As a result of the economic downturn," Stella said, "sales at Pine Crest are off this year. Their controller said they can't afford to pay the same amount this year for the audit. Were under a lot of pressure to kecp the fee as low as possible, and so Ms. Johnion has agreed to lower the fee a bit, but she wants us to complete the audit in record time." "What does that mean?" Jonathan asked. Tt means that the axdit time budget has been cut by 10% this year across the board. Whatever the budget for the section was last year, ifts 105 less this year:" That's not fair- lonathan protested. Yes it is. Weve got the same audit team working on the client this year as last year. We all know the client's operations and activities. There's no learning curve here, so it can be done. And 1 don't want to hear any protestx" No one said anything. That's all," Stella said. As everyone filed out of the manager's effice, Stella said, 'Arthar, can you stay for another minute, please." Arthur ast back down. "I wanted to say that normally I consider the inventory at Pine Crest to be something a junior can do. But I want you to do the inventory section again because you did such a good job last year. I hadn't realized that there could be an inventory transferring pricing isuve. Not until I read what you wrote last year. That was very insightful. 1 admired the way you honestly presented the issuc. You did not bias your analyais. That's what we like about you Arthur; you're hon: est and you have integrity. That was part of the reason why we gave you that promotion Last year. "Last year you managed to complete the inventory section of the audit and do that pricing analysis all within the forty-hour budget. I want you to be just as thorough this year. But because you're aware of the transfer pricing isue, you should be able to beceze through the inventory section:" She smiled. "Keep up the good work Arthur: Arthur went back to the bullpen, where all the audit staff sat. Ob no, he thought. A 108 reduction. That means that rti have thirty-six hours to complete the inventory section this year. It took me fifty houn last year! So that means if's a-oh no! That's a 28% reduction. I can't possibly do the entire section in thirty-six hours when I spent fifty hours last year. Not if she wants me to do the same level of analysis as I did last year. What am I going to do? The other staff accountants were working on their laptops. They didn't seem to care that the audit time budget had been cut by tos. Perhaps they had not fied on their time reports, and se the time reduction didn't matter to them. Arthur started to list his options on a piece of puper: Tell Stella the truth-that he lied on last year's time report, Would he be fired because he had not shown honesty and integrity? Arthur sat back in his chair and looked at the other accountants who were working on their laptops. How had he gotten himself into this situation? It began last year when he was hired by Castor Gotlieb L.L.P, the largest of the midsize accounting firms in the country. Arthur graduated at the top of his class with a bachelor's degree in accounting. He had been recruited by all the major accounting firms, but he chose CG, as it was called, because he liked the "vibe." During the interview, Arthur and the recruiter had talked at length about honesty and personal integrity. These were the values that Arthur prized the most, and he was assured that honesty and integrity were consistent with the values and mission statement of CG. At the first client that Arthur was sent to, he conducted the basic aspects of the audit. But he showed competence and an insight into potential audit problems, so on the next job he was given more complex aspects of the audit. He accomplished those on time and was given a very positive evaluation by his audit senior, Jonathan Lee. Arthur enjoyed the work but not necessarily the long hours, especially during tax season. It was difficult to work from nine until five at the client's office and then return to CG's office, where he completed tax returns until eleven at night, only to repeat the entire routine the next day and each day after that. He only had one day off each week. "Don't worry," he was advised by his manager, Stella Reese. "We book this time and then take time off during the summer. when there's less work to be done." In the second week of March, Arthur was sent work on the audit of the Pine Crest Furniture Company. Pine Crest manufactured and sold contemporary living room and dining room furniture through two stores that were located at either end of town. Arthur was responsible for the inventory section of the file. He had a budget of forty hours to complete that part of the audit because the junior had spent forty hours on inventory section last year. The audit of the inventory was straightforward, and Arthur was confident that he would be able to complete that section of the file under budget. On the second evening of the audit. while he was back in the office calculating the taxable capital gain for a wealthy client, Arthur realized that there might be an internal transfer pricing problem at Pine Crest with respect to one model of dining room furniture that had been moved from one store to the other store. For the next two days, Arthur spent an extra amount of time examining the internal transferring price scheme of the company. He carefully documented all his findings. After spend. ing nearly fifty hours on the inventory section, Arthur concluded that there was no problem with the inventory. Arthur had been mistaken and was embarrassed that he had spent so much time on the inventory. He felt that if he had just followed standard audit procedures, he could have completed the section within the budget. Consequently, he reported that he had spent only forty hours when he had really spent fifty. alliner inem in rnpetenan in. Complete the inventory audit and report thirty-six hours, regardless of how long it takes. Would this mean lying again on his time report? Would this be fair to whoever has to do the inventory section next year? Complain to Ms. Johnson and say that an arbitrary 10% reduction in audit time is unfair. How would Jonathan and Stella react if he went over their heads to the audit partner? Look for a job at another accounting firm. Why would he say that he was quitting? Question 1. What should Arthur do? Why
