Controllership in Accounting

Topic: Auditing & Confidentiality or Misrepresentation of Fact(s) (due to having conflicting clients)

Characters: Tracey Miller, New member of her CPA firms management Team and Robert Couch, CFO of Superb Products, Inc., a client

While reviewing the current-year audit working papers of American National Bank (ANB),

the engagement manager, Tracey Miller, noted something curious. In the working papers

related to loan valuation, Tracey saw that the commercial loan of Superb Products

had been randomly selected for confirmation but that Superb had not responded to either

the initial or second confirmation request. The audit staff disposed of this loose end by

alternate procedures: examining cash collections (which had become somewhat sporadic)

and vouching to underlying loan documentation, including a set of recent (unaudited)

financial statements that showed Superbs solid financial position and operating

profitability.

Tracey noted this reference to Superb Products because this private company was

also a client of her firm. In fact, Tracey had served as the audit senior on the prior-year

audit of Superb. She knew that the company had been struggling for a couple of years and

had experienced recurring operating losses. Her knowledge of Superb did not reconcile

with the discussion in the audit working papers related to the financial statements furnished

to the bank.

When Tracey contacted Superbs CFO, Robert Couch, and inquired about the companys

apparently miraculous turnaround, he was noncommittal and unhelpful. Robert replied that

business had picked up. He apologized for not calling Traceys firm himself because he had

been so busy, and then he told her that Superb had decided to engage another CPA firm for

its accounting and auditing needs. Although confused, Tracey obviously couldnt reject the

possibility that this abrupt dismissal was a direct consequence of her inquiry.

As a result, Tracey wonders whether the financial statements which Superb furnished to

the bank as a basis for a loan application are fraudulent. The bank apparently has no such

suspicion, however.]

Answer the following question from the case above :-

1. What are the relevant facts of the case?

2. What, if any, are the ethical issues?

3. Who are the stakeholders?

4. What are the possible alternatives including any ethical concerns?

5. What are the practical constraints?

6. What action(s) should be taken?