Frank Doran, a senior audit manager for Cruz and Santos, CPAs, has recently been informed that the firm plans to promote him to partner within the next year or two if he continues to perform at the same high-quality level as in the past. Frank excels at dealing effectively with all people, including client personnel, professional staff, partners, and potential clients. He has recently built a bigger home for entertaining and has joined the citys most prestigious golf and tennis club. He is excited about his future with the firm.

Frank has recently been assigned to the audit of Machine International, a large wholesale company that ships goods throughout the world. It is one of Bright and Lorrens most prestigious clients. During the audit, Frank determines that Machine International uses a method of revenue recognition called bill and hold that has recently been questioned by the SEC. After considerate research, Frank concludes that the method of revenue recognition is not appropriate for Machine International.

In discussing the manner with the engagement partner, she concludes that the accounting method has been used for more than 10 years by the client and is appropriate, especially considering that the client does not file with the SEC. the partner is certain the firm would lose the client if the revenue recognition method is found inappropriate. Frank argues that the revenue recognition method was appropriate in prior years, but the new SEC ruling makes it appropriate in the current year.

Frank recognizes the partners responsibility to make the final decision, but he feels strongly enough to state that he plans to follow the requirements and include a statement in the working papers that he disagrees with the partners decision. The partner informs Frank that she is unwilling to permit such a statement because of the potential legal implications. However, she is willing to write a letter to Frank stating that she takes full responsibility for making the final decision if a legal dispute ever arises. She concludes by saying, Frank, partners must act like partners, not like loose cannons trying to make life difficult for their partners. You have some growing up to do before I would feel comfortable with you as a partner.

Required:

Use the six-step approach to resolve the ethical dilemma.