Sunrise Bank recently appointed the accounting firm of Smith, Godfroy, and Hannaford as the banks auditor. Sunrise quickly became one of Smith, Godfroy, and Hannaford’s largest clients. Subject to banking regulations, Sunrise must provide for any expected losses on notes receivable that Sunrise may not collect in full.
During the course of the audit, Smith, Godfroy, and Hannaford determined that three large notes receivable of Sunrise seem questionable. Smith, Godfroy, and Hannaford discussed these loans with Susan Carter, controller of Sunrise. Carter assured the auditors that these notes were good and that the makers of the notes will be able to pay their notes after the economy improves.
Smith, Godfroy, and Hannaford stated that Sunrise must record a loss for a portion of these notes receivable to account for the likelihood that Sunrise may never collect their full amount. Carter objected and threatened to dismiss Smith, Godfroy, and Hannaford if the auditor demands that the bank record the loss. Smith, Godfroy, and Hannaford want to keep Sunrise as a client. In fact, Smith, Godfroy, and Hannaford were counting on the revenue from the Sunrise audit to finance an expansion of the firm.
For each of the following situations, answer the following questions:

1. What is the ethical issue in this situation?
2. What are the alternatives?
3. Who are the stakeholders? What are the possible consequences to each? Analyze from the following standpoints: (a) economic, (b) legal, and (c) ethical.
4. Place yourself in the role of the decision maker. What would you do? How would you justify your decision?