ETHICS CASE #1

Today you had lunch with your friend Sarah Teasdale. Sarah has worked with Zaird & Associates, CPAs, for about two years. Youve been with Zaird for only nine months. You discussed with her your difficulties in getting jobs done in the budgeted number of hours. Sarah said, Yeah, thats a problem. Youll get quicker with experience, butdont tell anyone I told you thissome of those audit plans are awful and include some outdated and even some stupid procedures. Sometimes I just sign the plan, but skip doing the procedure. I dont do this often, but sometimes the procedure isnt capable of detecting anything. You said little to her after this but are now thinking about whether you need to become more practical about how you perform your work.

Required:

1.Identify your problem here.

2.Identify your possible courses of action.

3.For each of these courses, identify any constraints relating to the decision (e.g., personal standards, societal norms, professional ethical standards, other professional standards) and analyze the course of actions likely effects.

4.Select the best course of action.

ETHICS CASE #2

You have worked with Zaird & Associates, CPAs, for a little more than a year and are beginning your second audit of Universal Air (UA). This year you even have an assistant reporting to youJane McClain.

Jane has come to you with a concern. She noticed that when sales are booked over the Internet by credit charge, an entry is made debiting cash (from the credit card) and crediting air traffic liability. When the scheduled flight occurs, UA recognizes the revenue from the ticket. If a ticket is canceled on the Internet, the only entry made is to a database that maintains specific flight information on seat availability. Jane has discovered that customers are e-mailed a Canceled Reservation form when this occurs, but no accounting journal entry is recorded, and no refund occurs until the customer requests (in writing) a refund. If the customer never requests the refund, a credit to the individuals credit card account is never issued; when they do not get refunds on their credit cards, many customers complain and are given a refund, with an accompanying journal entry being made for the cancellation.

After analyzing the Canceled Reservation form, you note that it says nothing about requiring a written cancellation for a refund. UAs controller responded to your inquiry about the policy of requiring a written request for a refund by indicating that the policy is presented on the websites business policies and procedures section. Furthermore, the controller says that in total about two-thirds of the customers ask for and receive refunds, while one-third do not. She then states to you that the other one-third must not be aware of the policy, or simply dont care. What the heck, caveat emptor!

At this point, you discussed the situation with Bill Radman, partner-in-charge of the audit. Subsequently, he made an inquiry of Zairds attorneys about the legality of the policy and received a reply that while it is probably a questionable policy, they are unable to say it is illegalin fact, it probably is not. Upon further investigation, you find that this policy has been in existence for three years (since your first year on the audit) and neither you nor anyone else in your firm has identified it previously.

Required:

1. Is this a significant deficiency? Should it be reported to the audit committee?

2.Should it be reported elsewhere? Where? How?

3.What impact should this policy have on the audit?