Read the facts in the case as noted above, but also answer the following when thinking about Gail: what is the code, what are some of its primary tenets, and who does it apply to?

Beekman Supply Case Case Developed by Accounting Assoc. American This case was developed by the American Accounting Association as part of the Independence Education Project. The case is video based, however due to the length of the video, greater than 40 minutes, a variety technical considerations prevent DeVry U from streaming video of this length. However, a script of the video follows that allows us to use this interesting and informative case. The dialogue is contained in the right hand portion of the document, stage and other production instructions are in the left column. Beekman Office Supply describes the actions of members of the audit team related to finalizing the fieldwork on the annual audit. Gail Orton is a senior manager at Putnam, Rhodes and is managing the Beekman audit. As Gail leaves for a short business trip related to another client, there are several issues yet to be resolved. On her return, she discovers that Preston Treadway, the partner on the engagement, has agreed to resolution of the issues with the client. Gail must decide what actions she will take given the events which occurred during her absence. Independence Education Program Slides Independence Education Video Case Study --Shooting Script VIDEO AUDIO FADE UP ON: Scene 1A: Establishing shot of Preston Treadway, Sr. Partner at Putnam, Rhodes & Company LLP. He is at his office desk checking his emails. Gail Orton, a Senior Audit Manager appears at doorway obviously at his request. MUSIC: (Theme to establish opening scene.) SUPER: Early one Monday... PRESTON: (Looks up.) GAILTHANKS FOR COMING IN. HOW WAS BOSTON? GAIL: BOSTON WAS GOOD. Gail enters and takes a seat. PRESTON: QUITE A DYNAMIC TEAM NATHAN'S PUT TOGETHER UP THERE. GAIL: YOU'RE RIGHT ABOUT THAT! A REAL JOY WORKING WITH A TOP-NOTCH CLIENT WHO'S HAVING A GREAT YEAR. (Beat.) QUITE A CONTRAST TO THE BEEKMAN ENGAGEMENT. PRESTON: THAT'S WHAT I WANTED TO SEE YOU ABOUT... ERIC MANNING CALLED WHILE YOU WERE GONE... Page 53 Independence Education Program Slides GAIL: DOESN'T SURPRISE ME. I WANTED TO BRIEF YOU BEFORE GOING BACK THERE THIS AFTERNOON. PRESTON: ACTUALLY, I TOOK THE LIBERTY OF ASKING TIMOTHY TO FILL ME IN... GAIL: TIMOTHY? (Getting anxious) DID HE EXPLAIN THE BATTLES WE'VE BEEN HAVING ABOUT THE INVENTORY AND RECEIVABLES ALLOWANCES? PRESTON: LAID THEM OUT CLEARLY. THEN--I PAID A VISIT TO BEEKMAN. SPENT AN AFTERNOON WORKING THROUGH THE ISSUES WITH ERIC MANNING... GAIL: (A bit taken aback.) OH? PRESTON: YOU'LL BE DELIGHTED TO KNOW WE IRONED THE WHOLE THING OUT. GAIL: REALLY? Page 54 Independence Education Program Slides PRESTON: CAME TO A REASONABLE COMPROMISE. THEY GOT THE NUMBERS TO THEIR ANNUAL REPORT PRINTER AND EVERYTHING'S PUT TO BED. (Throwaway.) THE JOB JUST REQUIRES YOUR SIGNATURE. GAIL: WHEN YOU SAYREASONABLE COMPROMISEHOW DID THEIR \"BOTTOM LINE\" TURN OUT AS A RESULT OF THIS \"COMPROMISE?\" PRESTON: A SMALL PROFITBUT A LOT LESS THAN WHAT THEIR BOARD'S BEEN EXPECTING. (A beat.) I THOUGHT YOU'D BE PLEASED. GAIL: (Hesitantly) YES, WELLI GUESS I NEED TO LOOK AT WHAT THE FINAL RESOLUTION TURNED OUT TO BE. Partner picks up an assortment of files and a Zip Disk on corner of desk and passes it to Gail. PRESTON: OF COURSE. I'VE HAD THE FILE WAITING HERE FOR YOUR RETURN. THE FINAL FINANCIALS ARE THERE, THE CLIENT DATA TIMOTHY COPIED, AND THE ENGAGEMENT CONTROL FORM, WHICH JUST NEEDS YOUR SIGNATURE. Page 55 Independence Education Program Slides GAIL: WELLI'LL FINISH WRITING UP MY PRELIM ON THE BOSTON ENGAGEMENTTHEN GO OVER THIS. Note to actor: The audit report is the auditor's \"opinion\" on the validity of the financial statements and is often referred to that way in the \"biz\". Without that report (opinion) the financial statements have no real value to stockholders, Investors, etc. PRESTON: PLEASE DO. I'VE ALREADY SIGNED THE AUDIT REPORT. JORDAN SMITH'S THE CONCURRING PARTNER ON THIS. NATURALLY, HE WON'T LET US RELEASE OUR OPINION UNTIL ALL SIGNATURES ARE IN PLACE. GAIL: AND... FOR THE SAKE OF ARGUMENT, SUPPOSE I HAVE A PROBLEM WITH SOMETHING IN HERE? PRESTON: GAILI'LL BE HAPPY TO ANSWER ANY QUESTIONS YOU HAVE. (Beat.) LOOKI KNOW IT WAS A TOUGH ENGAGEMENT. YOU CALLED THEIR FINANCE PEOPLE: \"UNRESPONSIVE,\" AS I RECALL? MAYBE YOU AND THE CFO JUST LOCKED HORNS OVER SOME JUDGMENT CALLS AND COULDN'T SEE THE FOREST FOR THE TREES. IT HAPPENS. Page 56 Independence Education Program Slides GAIL: (A beat.) IN CASE I DON'T GET THROUGH IT ALL TODAY, I'LL TAKE THIS HOME TONIGHT. YOU AROUND IN THE MORNING IF I HAVE ANY QUESTIONS? PRESTON: BE IN ALL DAY... DISSOLVE TO: Scene 1B: MUSIC: (Theme UP to punctuate title sequence.) MS on Gail returning to her office. Her desk is piled high. Her laptop is open on her desk. She surveys the mess, takes folder and places it prominently on desk. Then Gail sits, as though the weight of the world is on her shoulders. P.O.V. Over Gail's shoulder as camera ZOOMS IN on the folder atop her desk. It is official looking, with the words: \"Client: Beekman Supplies, Inc.\" SUPER TITLE: \"An Auditing Case Study\" DIP to BLACK; Then UP ON: MUSIC: (Pull theme under and out.) Page 57 Independence Education Program Slides Scene 2: ESTABLISHING SHOT of Gail with her team at work in conference room of client. They are huddled over laptops, papers piled on the table. Two assistants working with Gail: Timothy, a slender young man with a studious demeanor, and Kim, a young oriental woman, very professional in manner. SUPER: Two weeks earlier... KIM: (In mid-sentence.) ...NOW THAT I'VE SEEN EXACTLY WHAT MARKETING EXPENSES THEY CAPITALIZED IN THAT BIZARRE ASSET ACCOUNT, I CAN GIVE YOU THE DETAILS FOR A REVERSING ADJUSTMENT. GAIL: (Sarcastically.) HALLELUIAH! TIMOTHY, WHERE DO YOU STAND WITH THE DEPRECIATION TESTS? Page 58 Independence Education Program Slides TIMOTHY: WELLTHEY MADE A VERY ODD ENDOF-YEAR ADJUSTMENT THAT REDUCED THIS YEAR'S DEPRECIATION EXPENSE BY HALF. (Skeptically.) THEY TELL ME IT'S \"JUST A MATH ERROR.\" Before Gail can respond, an elderly, well-dressed gentleman in his late 50's sticks his head in the doorway. He is Eric Manning, President of Beekman Supplies. ERIC MANNING: YOU GUYS SURE KNOW HOW TO TAKE OVER A CONFERENCE ROOM. LELAND TELLS ME YOU'RE RAKING HIS STAFF OVER THE COALS. IT'S JUST AN AUDITLET'S NOT TURN IT INTO AN M.B.A. THESIS. (Spoken as an underlying threat.) I'VE GOT A BOARD WAITING FOR AN ANNUAL REPORT... CAMERA ANGLE shows Timothy and Kim looking to Gail to measure her Response. GAIL pauses for a moment, so as not to speak before Thinking. GAIL: MR. MANNING, WE ARE NOT RAKING ANYONE... (Looking up, she realizes Manning has Already gone down the hallway in a huff.) Page 59 Independence Education Program Slides GAIL: (To her team.) WELLWHAT I WAS HOPING TO SAY WAS: YOU GET ME THE ITEM-BY-ITEM INVENTORY TURNOVER STATISTICS AND THE AFTER-YEAR-END CASH RECEIPTS DETAIL LIKE WE'VE BEEN ASKING FORAND WE'LL BE READY FOR A SERIOUS DISCUSSION. Another individual sticks his head in the conference room: Leland Wilson, the fiftyish CFO. Leland is also well dressed, but does not have Eric Manning's sense of composure. Rather, Leland looks like he suffers from hypertension and ulcers. LELAND: MS. ORTON, WOULD YOU PLEASE SEE ME IN MY OFFICE. GAIL: I'LL BE RIGHT THERE. TIMOTHY: (Under his breath, but good-naturedly.) OOHMS. ORTON! GLAD I'M NOT IN CHARGE HERE. GAIL: (On her way out the room.) YOUR DAY WILL DISSOLVE TO: COME, TIMOTHY. Scene 3: PICKING UP ACTION in Leland's office. Leland sits, gesturing for Gail to take a seat at his desk. LELAND: I TAKE IT THE OLD MAN'S EXPRESSED MY DISPLEASURE WITH THE PACE OF YOUR AUDIT? Page 60 Independence Education Program Slides GAIL: I'M AWARE HE WANTS THE ANNUAL REPORT OUT AS SOON AS... LELAND: (Interrupting.) FRANKLY, MS. ORTON, WE EXPECTED THIS AUDIT TO BE FINISHED TWO WEEKS AGO. GAIL: AS DID I, MR. WILSON. BUT WE'VE BEEN ASKING AND ASKING FOR THE SUBSEQUENT CASH RECEIPTS DATA AND INVENTORY TURNOVER STATISTICS. WITHOUT THAT DATA, I'M IN NO POSITION TO ACCEPT YOUR ALLOWANCE NUMBERS FOR OBSOLETE INVENTORY AND BAD DEBTS. AS WE BOTH KNOW, THOSE ARE THE KEY JUDGMENTS IN THIS AUDIT. LACKING PROOF TO THE CONTRARY, I HAVE TO BELIEVE BOTH ALLOWANCES SHOULD BE DOUBLED. LELAND: (A little hot.) C'MON! WE'RE DEALING IN A GREY AREA ON BOTH THOSE ISSUES. (Trying a different tack.) YOUR YOUNG PEOPLE MAY BE VERY SMART. BUT THEY DON'T KNOW OUR BUSINESS, MS. ORTON. Page 61 Independence Education Program Slides GAIL: WE'RE NOT TRYING TO TELL YOU HOW TO MANAGE... LELAND: (Cuts her off again.) LET ME GET DOWN TO BRASS TACKS. THIS HAS BEEN A VERY TOUGH YEAR. BETWEEN THE MEGA STORES AND FLOOD OF \"DOT.COMs,\" WE TRADITIONAL WHOLESALERS HAVE SEEN MARGINS SQUEEZED LIKE FLORIDA ORANGES. YOUR PIN-STRIPE TEAM COMES IN AND FINDS SOME HONEST MISTAKES IN OUR NUMBERS. I CAN LIVE WITH THAT. BUTWHEN IT COMES TO THE VALUE OF OUR INVENTORY, AND COLLECTIBILITY OF OUR CUSTOMER ACCOUNTS, OUR EIGHTEEN YEARS OF EXPERIENCE IS WORTH MORE THAN YOUR \"POP-IN\" PERSPECTIVE. GAIL: I RECOGNIZE THERE'S ROOM FOR INTERPRETATION. BUT WITH NO SUBSTANTIVE DATAI CAN'T JUST ACT ON YOUR OPINION. Page 62 Independence Education Program Slides LELAND: IF I ACCEPT YOUR PESSIMISTIC VIEWS OF OUR RECEIVABLES AND INVENTORY AND HAVE TO DOUBLE ALLOWANCESWE'LL END UP IN THE RED. BELIEVE ME, MS. ORTON, IT WILL NOT SIT WELL WITH THE GENTLEMAN IN THE CORNER OFFICE. GAIL: MR. WILSON, WE'RE NOT GOING TO SOLVE THIS ISSUE IN THE NEXT FIVE MINUTES. FROM WHAT MY TEAM TELLS METHEY'RE CLOSE TO WRAPPING UP LOOSE ENDS ON ALL THE ROUTINE STUFF. YOU KNOW I HAVE TO BE IN BOSTON NEXT WEEK... LELAND: PRECISELY WHY I WANTED TO SEE THE AUDIT COMPLETED THIS WEEK. THERE'S NO WAY YOU CAN CHANGE PLANS? GAIL: NOT AT THIS DATE. TIMOTHY WILL BE IN CHARGE WHILE I'M GONE. I'M INSTRUCTING HIM TO WRAP EVERYTHING ELSE UP BY MID-WEEK. Page 63 Independence Education Program Slides THAT GIVES YOUR STAFF MORE TIME TO GET US THE DATA WE'VE BEEN ASKING FOR. AS SOON AS I'M BACKWE CAN REACH CLOSURE. LELAND: (Resigned.) I'LL BRIEF THE OLD MAN DISSOLVE TO: BUT HE'S NOT GONNA TAKE IT WELL... Scene 4: ECU on message from Office Managing Partner on computer screen. ZOOM OUT to reveal Preston at his desk reading message. SUPER: SOUND EFX: (Phone rings.) PRESTON: (Taking phone call at his desk.) PRESTON TREADWAY... ...ERIC, GOOD TO HEAR FROM YOU. \"The next week...\" ERIC: (Filtered.) HOW'S YOUR TENNIS GAME HOLDING UP? PRESTON: AFRAID YOU'D STILL PUMMEL ME, ERIC. BEEN ON THE ROAD SO MUCH I HAVEN'T HAD TIME TO HIT THE COURTS. ESTABLISH Eric in his office ERIC: (Teasingly) WELL DON'T LOOK TO ME FOR on phone. SYMPATHY... (Changes tone) LISTEN PRESTON, I NEED YOUR WISE COUNSEL ON SOME PROBLEMS WE'RE EXPERIENCING WITH THE AUDIT. Intercut, as appropriate. PRESTON: OH? WHAT KIND OF PROBLEMS? Page 64 Independence Education Program Slides ERIC: SEEMS YOUR AUDIT MANAGER AND MY CFO HAVE LOCKED HORNS. THE AUDIT'S COME TO A SCREECHING HALT. MY PR DEPARTMENT TELLS ME THEY CAN'T GUARANTEE GETTING THE ANNUAL REPORT OUT BY THE DUE DATE IF WE DON'T GET THE NUMBERS TO THE PRINTER ASAP. I WOULDN'T ASK UNDER NORMAL CIRCUMSTANCESBUT I'D SURE BE RELIEVED IF YOU COULD MEET WITH LELAND AND ME RIGHT AWAY TO PUT THE OUTSTANDING ISSUES TO REST. PRESTON: CAN'T IT WAIT 'TIL GAIL FINISHES IN BOSTON? SHE'S GOT THE BEST GRASP OF... ERIC: IF I FELT IT COULD WAITI WOULDN'T BE CALLING. Preston turns to computer terminal to check his calendar. PRESTON: OKAY. I HEAR YOU. (Beat.) HOW 'BOUT WEDNESDAY AFTERNOONONE O'CLOCK? Page 65 Independence Education Program Slides ERIC: MAKE IT TWELVE-THIRTY AND I'LL TAKE YOU TO LUNCH AT THE CLUB. PRESTON: TWELVE-THIRTY IT IS. DISSOLVE TO: Scene 5: ECU on stack of folders labeled \"Beekman Office Supply.\" A hand enters frame and seeks one or two files. ZOOM OUT to reveal Timothy, in something of a hurry. He turns to leave the room. In the hallway, he passes by Kim. KIM: (Sarcastically.) IN A HURRY? TIMOTHY: OFF TO PRESTON'S OFFICE. SOMETHING'S COME UP ON THE AUDIT. HE WANTS A BRIEFING... DISSOLVE TO: Scene 6: PRESTON: (In conversation.) ...WHAT DO YOU BASE Treadway's office, as Timothy is briefing him. YOUR ESTIMATE ON? TIMOTHY: THE WAY THE INVENTORY'S GROWN SUGGESTS THERE'S OBSOLETE INVENTORY THAT'S NOT LIKELY TO MOVE AT CURRENT PRICES. Page 66 Independence Education Program Slides PRESTON: AND BEEKMAN'S CFO IS CONTENDING THEY WILL BECAUSE? TIMOTHY: (Warming to the task.) THEY'RE TOUTING SOME NEW MARKETING PROGRAM COMBINED WITH E-COMMERCE INITIATIVES THEY'RE IN THE MIDST OF LAUNCHING. PRESTON: SO A CASE CAN BE MADE THAT THE VERDICT'S STILL OUT? TIMOTHY: IT'S A JUDGMENT CALL. HOW ASTUTE IS THEIR MANAGEMENT TEAM? CAN THEY PULL IT OFF? PRESTON: (A beat.) OKAY. THANKS VERY MUCH, TIMOTHY. LEAVE THE FILES SO I CAN HAVE AN INTELLIGENT DISCUSSION WITH THEIR C.E.O. I'LL LET YOU KNOW HOW IT GOES... DISSOLVE TO: Scene 7: ERIC: ...ACCORDING TO LELAND, YOUR TEAM'S Eric Manning's office, as he and Preston are deep in negotiation. WAY TOO PESSIMISTIC ON THE VALUE OF OUR RECEIVABLES AND INVENTORY. AND NOW THEY WANT ME TO PROVE THAT THEY'RE WRONG! Page 67 Independence Education Program Slides (A change in tone.) MORE IMPORTANTLY, I'VE GOT SOME BANKERS TRYING TO MUSCLE THEIR WAY ONTO THE BOARDAND NOT TO GIVE ME A PAT ON THE BACK. I'VE HINTED THAT, DESPITE THE TOUGH MARKET, WE'RE GONNA EMERGE FROM THE YEAR WITH A REASONABLE PROFIT. IF THEY BUY ITTHAT GIVES ME TIME TO EXECUTE OUR NEW STRATEGIC PLAN. ...BUT IF I ACCEPT YOUR NUMBERS, MY ANNUAL REPORT'S IN THE RED......WE'LL BE IN DEFAULT ON THE BANK LOAN... ...AND I MAY NOT BE ABLE TO FEND OFF THE SHARKS. PRESTON: (Pauses. He understands the inference that if Manning goes down he could lose Beekman as a client.) I'VE LOOKED AT THE NUMBERS. YOU'RE ASKING FOR A LOT... Page 68 Independence Education Program Slides ERIC: HOW 'BOUT THIS: I'LL GIVE YOU THE DEPRECIATION AND THE ADVERTISING COSTSIF YOU CAN SEE YOUR WAY TO SIGNING OFF ON OUR RECEIVABLES AND INVENTORY. PRESTON: I CAN'T GO THAT FAR, ERIC. WHAT IF YOU \"EAT\" AT LEAST A THIRD OF THE RECEIVABLES AND INVENTORY? Eric turns to calculator on his ERIC: THAT'LL MEAN... desk to run the numbers... PRESTON: ABOUT A HUNDRED THOUSANDDOLLAR PROFIT. ERIC: ALWAYS DID DO YOUR HOMEWORK, PRESTON... PRESTON: WHILE YOU WERE ON THE TENNIS COURT. (A beat.) WHY DON'T YOU GET YOUR CFO IN HERE. SEE IF WE CAN'T PUT THIS TO BED. Eric reaches for the phone. ERIC: I TOLD HIM TO BE ON CALL FOR US... DISSOLVE TO: Page 69 Independence Education Program Scene 8: ESTABLISHING SHOT of Preston and Jordan Smith, an African-American partner, who is the concurring partner on this engagement. Jordan's looking at files as they walk through hallway... Slides PRESTON: ...SO I SIGNED OFF, JORDAN, AND THE REPORT'S AT THE PRINTER. OF COURSE, I WARNED THEM NOT TO MAKE ANY PUBLIC ANNOUNCEMENT UNTIL WE'VE COMPLETED OUR INTERNAL REVIEW AND SIGNOFF. JORDAN: I'LL GO OVER IT AS SOON AS POSSIBLE... PRESTON: I APPRECIATE IT. CALL ME RIGHT AWAY IF YOU SPOT ANY PROBLEMS. JORDAN: DON'T WORRY... (Perusing the report) ...OH, PRESTON. HERE'S ONE THINGTHE AUDIT MANAGER'S SIGNATURE? PRESTON: RIGHTGAIL ORTON. SHE'S IN BOSTON 'TIL MONDAY. I'LL HAVE HER SIGN AS SOON AS SHE RETURNS. JORDAN: SOUNDS GOOD... SLOW DISSOLVE TO: Scene 9/1A: GAIL: WELL--I'LL FINISH WRITING UP MY PRELIM REPRISE from opening scene... ON THE BOSTON ENGAGEMENT-- THEN GO OVER THIS. Page 70 Independence Education Program Slides PRESTON: PLEASE DO. I'VE ALREADY SIGNED THE AUDIT REPORT. JORDAN SMITH'S THE CONCURRING PARTNER. NATURALLY, HE WON'T LET US RELEASE OUR OPINION UNTIL THE ENGAGEMENT CONTROL FORM'S BEEN SIGNED OFF BY EVERYONE. GAIL: AND... FOR THE SAKE OF ARGUMENT, SUPPOSE I HAVE A PROBLEM WITH SOMETHING IN HERE? PRESTON: GAILI'LL BE HAPPY TO ANSWER ANY QUESTIONS YOU HAVE. (Beat.) LOOKI KNOW IT WAS A TOUGH ENGAGEMENT. MAYBE YOU AND THE CFO JUST LOCKED HORNS OVER SOME JUDGMENT CALLS AND COULDN'T SEE THE FOREST FOR THE TREES. IT HAPPENS. GAIL: (A beat.) IN CASE I DON'T GET THROUGH IT ALL TODAY, I'LL TAKE THIS HOME TONIGHT. YOU AROUND IN THE MORNING IF I HAVE ANY QUESTIONS? Page 71 Independence Education Program PRESTON: BE IN ALL DAY... DISSOLVE TO: Scene 1B: MUSIC: (Theme UP to punctuate title sequence.) REPRISE shot of Gail returning to her office. Her desk is piled high. Her briefcase sits open on her chair. She surveys the mess, takes folder and places it prominently on desk. Then Gail sits, as though the weight of the world is on her shoulders. MS on Gail returning to her office. She takes folder and places it on her desk. Then sits, as though the weight of the world is on her shoulders. P.O.V. Over Gail's shoulder as camera ZOOMS IN on the folder atop her desk. It is official looking, with the words: \"Client: Beekman Supplies, Inc.\" SUPER: MUSIC: (Theme UP to punctuate end of case.) \"Discuss t h e issuesand the action Gail should take...\" FADE TO BLACK Page 72 Slides