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Conflicting Clients: Auditing, Confidentiality, Misrepresentation of Facts

Masters in Business Administration

University of the People

BUS 5115: Business Law, Ethics, and Social Responsibility

Written Assignment Unit 2

Dr. Patrick Udeh (Instructor)

June 29, 2022

Relevant facts of the case and ethical issues

Any professional organization's ethical code of conduct mandates that all employees

uphold their principles, the organization's values, and standard practices. Business ethics, as it

relates to corporate organizations, is the observance of fundamental ethical standards in any

conventional organization (Corporate Finance Institute, 2022). As part of this ethical concept,

auditors are obligated to disclose any unethical actions they become aware of when

conducting business or interacting with clients. Examples of such unethical practices include

terrorism, drug trafficking, money laundering, and any form of information misrepresentation

(Snyder, 2011).

Even though Jennifer Grace had previously audited Fantastic Developments Inc.'s

financial records, it is obvious that she will need to put in a lot of effort to gather proof that

will dispel any doubts regarding the bank's clients, specifically Coshocton National Bank

(CNB), which includes Fantastic Development Inc. During her Company audit, Jennifer

Grace will not use any specific information in her custody for any public comparison or

review. To uphold the moral norm in this situation, Jennifer may either directly contact the

Security Exchange Commission (SEC) or report the matter through her firm. Although it is

clear that Jennifer became aware of the numerous unethical practices and bad financial

standing of FD as a corporation, she may have wanted to wait to alert CNB until she had a

solid justification for her suspicion. She believed it was her duty as an independent CNB

Auditor to inform the current customer about the unethical actions of FD. In this case,

Jennifer was required to violate any confidentiality agreements with her previous customer

FD, who was preparing to defraud CNB by submitting a false financial statement. This will

go a long way toward safeguarding CNB, its administration, shareholders, and clients against

any possible loss. But at the same time, if the FD's financial situation remains dire, the firm

may finally file for bankruptcy, which would result in job losses for staff members as well as

a loss of revenue for management.

The stakeholders in our case.

The parties involved in this situation are FD, CNB, and Jennifer's auditing company. A

stakeholder is a party interested in the performance of a company,, who may be directly or

indirectly impacted by any business decisions made by the organization (Fernando, 2022).

Managers, stockholders, employees, and every client in every company are thus included as

stakeholders in this case. Jennifer discovered herself in the middle of a complex moral

conundrum because any unpleasant choice would have a lasting impact on them. Last but not

least, Tom's newly hired CPA company might have to decide whether to accept a contract

that is founded on misleading information. Intentionally doing this means conspiracy, which

has legal consequences.

Possible alternatives/outcomes

Jenifer was fully aware of Fantastic Development's recent financial struggles because

she had previously audited the company's financial records. Consequently, the first move

would be to write a formal letter informing CFO Tom Ward of her concerns. She can ask him

to supply accurate financial information and notify him of the need for financial reporting.

The second choice is to notify the bank of Fantastic Developments Inc by outlining her

awareness of them. Jenifer can further alert the public to the business's dishonest practices.

Finally, Jenifer has the option to remain silent and give the other organization control over

the company's financial reporting.

Ethics of the alternatives (Rights Perspective)

Each alternative's ethics are dependent on an ethical theory or justification.

Utilitarianism holds that a deed or conduct is morally right if it profits the greatest number of

people (Arnold, Beauchamp & Bowie, 2019). According to this justification, Jenifer

"blowing the whistle" and informing the public would be the wisest course of action.

The other course of action will protect the bank, prospective investors, and the general

public. The 'rights' perspective of ethics suggests that people have rights that other people

ought to uphold or respect. People should not be a matter of survival, but rather an end in and

of themselves (Greenwood & Freeman, 2018). ‘Access to information is a right, as stated in

the American Constitution. As a result, Fantastic Development's shareholders and the

general public had a right to be informed of its true financial situation. Accordingly, a better

choice is one that upholds human rights. Hence, the correct course of action would be to

persuade Fantastic Developments to give the bank and the general public accurate financial

data.

Compared to other approaches, the justice approach encourages the application of

moral principles and laws to strengthen equity and fairness. Honesty, integrity, objectivity,

competence, secrecy, and professionalism are the guiding values for the professions of

accounting and auditing (Arnold, Beauchamp & Bowie, 2019). A fair depiction is essential

while reporting according to the law. However, Fantastic Development Inc. disregards these

guidelines. The fourth option, remaining silent, is by far the most unethical since it exposes

the financial institution, the prospective clients, the current shareholders, and investors to

future hazards. Additionally, it supports shady and unlawful business practices. It only hurts

the industry, period.

Practical Constraints evident in the case

Putting the suggested solutions into practice Jenifer e might have trouble getting in

touch with the CFO because Tom Ward fired her even though the business had hired a

different CPA firm. Thus, it is impossible to address the matter with him. Or there is a good

chance that the CFO won't want to speak with Jenifer about it. Jenifer, on the other hand,

would be acting unethically if she made direct contact with the bank since she would be

interfering with the affairs of other businesses, which is against the law.

Recommendations

The Sarbanes-Oxley Act was passed, among other things, to protect whistle-blowers

and to assist in preventing unethical behavior and accounting fraud (Ferrell, n.d). Both the

laws and Jennifer's professional code of conduct must be followed. Jennifer must first take all

the necessary steps in her role as an auditor (during the current audit assignment) to acquire

proof that will allay all of her worries about CNB clients. Even though she has previously
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inspected FDI's accounting, the evidence dispels her worries about it (All Answers Ltd,

2021). Alternatively, a second option would be to alert the appropriate party of her suspicion,

who would offer her security for sharing that information. By taking this action, she would

protect her reputation, the public image of her company, and its ability to retain customers;

the bank would not have endorsed a potentially risky loan; the new CPA Tom hired wouldn't

have to worry about the possibility of collusion accusations; and finally, FDI would face

punishment if they fabricated their financial information (Corporate Finance Institute, 2022).

References

Arnold, D. G., Beauchamp, T. L., & Bowie, N. E. (2019). Ethical theory and business.

Cambridge University Press.

Corporate Finance Institute. (2022, February 25). Ethical Dilemma.

https://corporatefinanceinstitute.com/resources/knowledge/other/ethical-dilemma/

Greenwood, M., & Freeman, R. E. (2018). Deepening ethical analysis in business ethics.

Journal of Business Ethics, 147(1), 1-4. https://doi.org/10.1007/s10551-017-3766-1

Fernando, J. (2022, June 29). Stakeholder. Investopedia. Retrieved June 26, 2022, from

https://www.investopedia.com/terms/s/stakeholder.asp

Snyder, H. W. (2011, February 1). Client Confidentiality and Fraud. Fraud Management | A

Publication of the Association of Certified Fraud Examiners. Retrieved June 27, 2022,

from https://www.fraud-magazine.com/article.aspx?id=4294968847
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All Answers Ltd. (2021, December 31). Analysis of Unethical Practices in Banking.

UKESSAYS. Retrieved June 30, 2022, from

https://www.ukessays.com/essays/business/the-unethical-practices-in-the-banking-

industry-business-essay.php