Ethical Dilemma What Duty of Disclosure Is Owed to Incoming Partners? ACTS James Edwards was just appointed managing James Edwards initiated discussions with Jones, Jones, artner of the northeastern division of Banks & Borre, a Frank regarding the possibility of a merger. James indicat restigious national certified public accountant (CPA) firm that he could arrange attractive compensation packages operating as a partnership. The position is an excellent one, the partners of the smaller firm. Ken, Richard, and Dona and James is the youngest partner ever to have served as a have inquired about the lawsuits pending against Banks egional managing partner. However, although Banks & Borre. Not having been involved in the services that ga orre is a well-established firm, it recently has been subject rise to the lawsuits, James does not know most of t o several sizable lawsuits that allege the firm's misconduct details. He does know, however, that concern about the li n services it provided to several banks and certain tax gation could destroy all prospects for the merger. Jam helters. reassures Ken, Richard, and Donald that he does not kn Robert Smith, the national manager, has given James much about the lawsuits but is under the impression th lear guidelines on management strategy for the northeast they are not significant. livision. Smith has emphasized the importance of expanding he client base in light of the pending lawsuits. A principal trategy is to expand through acquisition of smaller firms. Social, Policy, and Ethical Considerations because of his position as manager of the northeastern divi- 1. Should James make a point of acquainting himself wi ion, James receives both a salary and a percentage of new the details of the litigation? Were his preliminary stat lient revenues. ments about the lawsuits justifiable? Jones, Jones, & Frank is a medium-size CPA firm that 2. Is it ethical for Banks & Borre to recruit new partne provides auditing, tax, and management advisory services to and to institute a policy that encourages mergers, giv variety of clients. Brothers Ken Jones and Richard Jones the pending litigation? egan the practice twenty-five years ago. Donald Frank 3. If a merger takes place, could Ken, Richard, and Donald egan as an employee but was brought into the partnership held liable for any judgments arising from the litigation? n its fifth year. Jones, Jones, & Frank has been considering the possibil 4. How might a CPA firm insulate its partners from p ty of merging its practice with that of a larger firm. Ken sonal liability? nd Richard are in their late fifties and no longer want man- 5. What actions should Jones, Jones, and Frank take gerial responsibilities. Nevertheless, they wish to remain investigate Banks & Borre before proceeding with t ctive in the practice. merger