CASE

We have all had that friend, an individual who attaches himself or herself to us without our encouragementor approval, for that matter. For Debbie Woodruff, that friend was David Quinn. Debbie met David in the very first college accounting class that either of them took at the large public university they attended. Shortly before the instructor entered the room, David had rushed in and taken the seat to Debbie's left. Moments later, an out-of-breath David had leaned over and asked Debbie, "Is this Accounting 201?" That question was the beginning of a relationship that would last for decades.

Debbie had little trouble grasping the revenue recognition rule, accrual accounting, straight-line depreciation, and the other fundamental concepts and topics in the introductory financial accounting course. David, on the other hand, struggled to earn a "B" in the course. Debbie never questioned David's intelligence. The problem was that David simply had too many outside interestscampus politics, his social fraternity, and weekend partiesto devote sufficient time to studying for the rigorous departmental exams in ACCT 201.

Before each exam, David would ask Debbie if they could study together. Debbie was not particularly fond of David, but she agreed to tutor him while she prepared for each exam because explaining an accounting concept or principle to someone else made the given item "gel" in her own mind. During two of these tutoring sessions,

David asked Debbie for a date. The second time, Debbie told him that she did not mind studying together but that their "chemistry" made dating out of the question. David's outspoken and opinionated manner was the principal source of the chemistry problem between the two accounting majors. On most subjectspolitics and economics, in particularDavid had an opinion, an expert opinion, which he was more than willing to share with anyone who would listen. Debbie was much more reserved and preferred to spend her time focusing on her studies rather than debating whatever happened to be the front-page issue of the day.

Over the remainder of their college careers, Debbie and David sat side by side in most of their accounting courses and several other business courses, as well. Eventually, Debbie came to accept David's brash personality and considered him a friendjust not a close friend. Debbie maintained a near-perfect 3.9 average in her accounting courses, while David finished with a 3.2 in his accounting major. During her final year of college, Debbie accepted an audit staff position with a nearby office of a Big Eight accounting firm. As fate would have it, David accepted a job on the tax staff of that same office.

Debbie wasn't thrilled by the fact that she and David would be working for the same fi rm. She expected, however, that they would seldom see each other since she would be working primarily at client locations, while David would likely be "stuck" in the office completing tax returns and doing tax research. Debbie was right. During their first year in public accounting, she saw David only on the rare occasions that she was in the office, which was typically during the wrap-up phase of an audit to which she had been assigned.

Each time she was in the office, David would ask Debbie to go to lunch with him. Debbie always accepted. She didn't like to admit it, but the lunches served a useful purpose, namely, catching up on all the office scuttlebutt. David seemingly made it his business to know everyone else's business. He would joyfully tell Debbie which tax manager had not received a recommendation for promotion, which audit senior was interviewing for a position on a client's accounting staff, and which intra-office relationship was not "working out."

One Friday in early April, Debbie and David met for lunch to celebrate the end of her second busy season. Debbie was in the office tying up loose ends on the soon to- be-completed audit of her largest client. She was looking forward to the lunch because she hadn't spoken to David since the office Christmas party almost four

months earlier.

On their way to a nearby restaurant, David told Debbie that three of his friends on the tax staff of another Big Eight accounting fi rm would be meeting them for lunch. Debbie realized that the presence of those individuals would likely divert David's attention and deprive her of the latest news from the office grapevine. So, she resigned herself to a having a boring lunch. She could not have been more wrong.

During lunch, the four tax professionals swapped war stories regarding the latest returns on which they had worked. Debbie found the topic of the conversation inappropriate. In her mind, it was best to never discuss professional engagements, audit or otherwise, over lunch in a public setting. You just never knew who might be eavesdropping

at an adjoining table. Debbie became particularly uncomfortable when David began discussing the tax return of a wealthy local businessman who had previously served several terms on the city council.

"Yeah, you wouldn't believe the investments this guy has," David said to the friend on his left. "The guy is loaded. And I mean . . . loaded!" Debbie cringed. Anyone within 20 feet could have heard David's emphatic pronouncement. She attempted to change the subject of the conversation, but David refused to yield the floor.

"No, wait, Debbie, I gotta tell these guys about the latest racket this dude is running." Debbie cringed once more. "You wouldn't believe what he wants us to do. He wants to write off the cost of his daughter's wedding as an entertainment expense. And, you know what? I think we are going to let him do it!"

Debbie couldn't take it anymore. "David, you shouldn't be talking about this at lunch. You don't know who is listening."

"Come on, Debbie. No one's listening."

"David. I'm serious. This is inappropriate."

"What?" David was obviously surprised that his normally meek friend was challenging him. Over the five years that he had known Debbie, she had never behaved in this manner. He was not only surprised but also somewhat miffed that Debbie was running the risk of embarrassing him in front of three fellow tax professionals. "Look around us, Debbie. These people aren't listening to us. Besides, they are all strangers."

"David, that's the point. These people are strangers. And how do you know that they aren't listening? Isn't it possible that one of them might call up your client and tell him what they heard?"

David leaned back in his chair and shook his head. "Oh yeah, I'm sure Grandma over there wrote down every word I just said."

Debbie was flabbergasted at her friend's flippant attitude toward what she considered a very important topic. "David, does the phrase 'client confidentiality' mean anything to you? Surely you tripped across it when studying for the CPA exam?"

"Oh, so you are going to bring up the CPA exam? I guess you are trying to embarrass me in front of my friends. Just because you passed that stupid thing the first time and I am still working on it doesn't make you an expert on ethics issues."

"David. You know that's not what I meant," Debbie responded indignantly. "Even if 'Grandma' isn't listening, you are talking about sensitive issues regarding a tax client with three guys from a competing office."

"Oh, I see. My buddies here are going back to their office to report me to the state board, right?" David was no longer miffed; he was angry. "Now, you've gone too far, Debbie. My friends would never do anything to get me into trouble." He then added in a sarcastic tone, "If anyone 'reports me' it will be you, Miss Self-Righteous."

Debbie reached into her purse and counted out the money for her part of the bill. She then laid the cash on the table in front of her and, without speaking to David or his friends, left the restaurant.

David and Debbie did not speak again until their office's annual July Fourth golf tournament. To his credit, David approached Debbie and said that he hoped they could put their unpleasant encounter behind them.

"I'm sorry it happened. Why don't we just forget it, Debbie? We've been friends for a long time. There's no reason we can't get over this."

Debbie stepped forward and gave David a light hug and told him that they could be friends once more. Despite the nice overture by David, in the future Debbie made every effort to avoid him when she was working in the office.

ANSWERTHEFOLLOWINGQUESTIONS

1.Explain the meaning of the phrase "client confidentiality" in the context of a CPA's ethical responsibilities. In your opinion, did David Quinn violate the accounting profession's client confidentiality rule?(5MARKS)

2.Assume the role of Debbie Woodruff. How would you have handled the situation that arose in the restaurant? (5 MARKS)

3.Did Debbie have a responsibility to report David's behavior to a superior in her practice office or to anyone else? Why or why not? Did Debbie have a responsibility to determine whether her fi rm's tax department was providing appropriate professional advice regarding the deductibility of the entertainment expenses being claimed by David's client? (15 MARKS)