Joe works for a small public accounting firm (10-20 personnel, 3 partners) primarily performing tax preparation and small business consulting as an entry-level staff associate. He has been on the job for just over 2 years. Simultaneously he is working on passing the last section of the CPA exam. He likes his job, is accomplishing all his assignments, and is progressing rapidly in the level of responsibility within the firm. The managing partner of the firm has just assigned Joe to work on a new big client, Midway Supply Inc. The majority shareholder of Midway Supply Inc. is a good friend of the managing partner, and Joe is told to give them special attention and priority. As Joe begins the engagement, he is introduced to the Midway Supply Inc. controller, Bob, who happens to be the son of the majority shareholder of Midway Supply Inc.. Bob is a newly licensed CPA, just a few years older than Joe, and is a very likable person. Over the course of time Joe becomes friends with Bob, views him as a professional mentor, and they begin to attend social functions together outside of work. At first there does not seem to be any problem, but over time Joe notices that Bob parties hard. When they are out Bob tends to pick up the tab, and even comments hey, its deductible. As Joe is working on the Midway supply Inc. tax preparation, he notices that there are many expenses in the books from the bars and restaurants that he and Bob had frequented. Joe knew there was absolutely no business purpose to any of their outings. Concerned, he digs a little deeper into the books and finds additional expenses that do not seem to belong in the company books. He asks Bob about the expenses. Bob just says, hey Im doing business all the time, and those are just out of pocket costs that I have been reimbursed for. Joe notes that one of the expenses was for a weekend trip to Las Vegas. Joe knew Bob was on vacation over that weekend and that much of the actual expense was for alcohol and gambling.

Part 1: Ethical Issues 1. What possible ethical issues is Joe faced with?

2. Who are the parties that could be affected under the circumstances?

3. If Joe decided to go to the managing partner to discuss Bobs actions, what would the responsibility be to that partner?

4. Midway Supply Inc. asks the small accounting firm to perform an review because the bank is asking for more than a compilation as to the financial statements. What issues does this possibly create as to Joe?

Part 2: Has Bob acted unethically? What are normally central themes as to unethical behavior? Use the concepts of the fraud triangle in your answer.

Part 3: How do you personally (benchmark) determine if your actions are ethical or not ethical?