Fast forward six years from the events of Mini-Case 1. You are now an audit senior manager at Popejoy & Lee LLC, and you continue to serve as the firms in-house expert on matters of ethics and professional responsibilities. In fact, youve even gained a reputation for expertise in such matters among your fellow alumni of the graduate program, which brings us to the matters of this case... Buford Calloway, a graduate (and classmate of yours), and CPA in the state of Georgia, is a valuation specialist in the Atlanta office of Lee & Han LLC. He has been brought into the Frost Systems, Inc., assurance engagement by Joe Kang, engagement partner, to provide an estimate of the value of a portion of Frost Systems merchandise inventory that has experienced a recent obsolescence loss of undetermined amount. Kang informs Buford that the merchandise inventory is on the books of Frost Systems at a value of $28 million and that preliminary work of the engagement team suggests that the inventorys value on the balance sheet date is closer to $18 million. Kang tells Buford that in rather heated exchanges with Kate Boller, Frost Systems CFO, Boller has made it clear that she will not accept a write-down below $22 million, especially in light of the potential effect such a write-down would have on the companys ongoing negotiations for a $20 million expansion loan. Kang quotes Boller as saying, Any write-down below $22 million will cause us to miss the earnings estimate weve been using in our bank negotiations, and too much is riding on this loan to allow this to happen. In the course of the orientation conversation, Kang informs Buford that the materiality threshold for the Frost Systems assurance engagement is $1 million. Buford completes his valuation work and arrives at an estimated inventory value of $19 million +/- $1 million. He provides Kang his estimate and moves on to his next valuation engagement. A few days later, in the office, Buford happens to run into Barbara Simon, a fellow Wake Forest alum and engagement manager on the Frost Systems assurance engagement. When he asks her how the Frost Systems inventory issue resolved itself, she tells him that everything wrapped up smoothly, with the client accepting a recommended write-down to $22 million. Buford is surprised at the amount, in light of his estimate, but says nothing to Barbara in the moment. Later that evening, as Buford reflects on what he had heard earlier that day from Barbara, he wonders if he should say something to someone about the discrepancy between the write-

down implicit in the estimate he had provided Joe Kang and the write-down apparently agreed to by Joe Kang and the assurance engagement team. He is tempted to simply move on, but, as he reflects, he wonders what responsibility he might have as a CPA to pursue this issue. Realizing that youve become an expert in such matters, Buford decides to reach out to you for guidance. Ethical Decision Due Diligence (ED3) Analysis 1. What is the ethical issue, what are the relevant facts and circumstances, and who are the actors? 2. Who are the relevant stakeholders (individuals and organizations), and what is at stake for each? 3. What fundamental Principles of the accounting profession, what bedrock values, are at stake and why? 4. Compliance with which Rule/s is being threatened, which of the AICPA Conceptual Framework Approaches should you use to analyze such threats, and how would you characterize the identified threat/s? 5. What Interpretations, if any, do you consider to be applicable, either directly or indirectly? 6. In light of your analysis through summary question 5, do you consider the threats youve identified to be at an acceptable level or not? 7. What specific course of action and/or safeguard/s do you recommend?