As we have discussed in class on several occasions, ethics is crucial for auditors. If we have lapses in ethics, we have situations such as with Enron and WorldCom in the early 2000s. Answer the questions following the scenario below. You must answer each question completely to get full credit. (20 points) Jimmy, a certified public accountant (CPA), is acting as the in-charge/senior on the audit of Southland Company, an existing client of the firm that is publicly traded. Jimmy works hard on this engagement along with his other engagements during the Spring busy season. The following Fall, the Public Company Accounting Oversight Board (PCAOB) notifies the firm of its annual inspection visit that is scheduled in a little over two weeks and the selection of Southland Company's work papers that will be inspected. Knowing that the PCAOB would be arriving soon to examine the Southland Company audit work papers, the manager and the partner review the work papers and refresh themselves on the details of the engagement. Jimmy receives an email from the manager with a request for the paper version of the work papers from the file room. Jimmy delivers the work papers to the manager's office the Friday prior to the PCAOB inspectors' arrival on Monday. On that Friday, Jimmy and the manager determine that the file is incomplete with respect to two key documents: a supporting worksheet for a key item and a final version of the signed engagement letter. Jimmy reviews the work papers and cannot find the supporting worksheet. However, he does find an earlier version on his computer. At the manager's direction, he prints the worksheet and adds the appropriate tickmarks and work paper references and then initials and backdates the work paper. This work paper is added to the file without any explanation for the late addition or the actual date it is added to the file. Firm policy and auditing standards require a signed engagement letter for all audits. The manager notes that the audit work papers do not contain an engagement letter that includes an original client signature. The manager contacts the client and directs Jimmy to follow up to obtain the engagement letter. Jimmy exchanges emails with Southland's corporate controller and arranges to have the newly signed engagement letter delivered prior to 8:30 a.m. on Monday, the day of the inspectors' arrival. When the letter arrives, it is inserted into the hard copy documents without notation of the true date of insertion or the reason why it is added late. Jimmy takes the completed, revised work papers and delivers them to the PCAOB inspectors when they arrive.

1. What professional standards and/or principles of ethics did Jimmy violate, if any? Should Jimmy be sanctioned by the firm or the PCAOB? If so, how?

2. Who are the main stakeholders in this situation besides Jimmy? How might each of these stakeholders be affected by Jimmy's choices?

3. How might Jimmy rationalize his behavior as acceptable?

4. What alternative actions would you recommend for Jimmy?

5. Jimmy failed to speak up when confronted with his ethical dilemma. Assume he wanted to act ethically. What factors contributed to his silence? How could he have raised his concerns?