Posted: September 20th, 2022


PerilsCase x

Compromising your Morals: The Perils of New Beginnings as an Auditor

The Challenge

From the day Rachel Baker was born, her parents, Wes and Dora, dreamed of her completing college education debt-free. Unfortunately, raising Rachel and her five younger siblings, was significantly more expensive than the Bakers expected. With Dora’s recent battle with cancer, the only way for Rachel to realize her parents’ college education dream was with student loans.

After struggling academically to graduate in the top 20% of her class of 60, Rachel was fortunate to qualify for direct admittance into a state university four hours away from her small rural hometown. While she expected state university would be academically rigorous, the work was much more challenging than Rachel anticipated. Not only were the classes significantly larger than her high school classes, but they were also considerably more demanding. Despite being homesick, Rachel, the first from her extended family to enroll in college, was determined not to make her parents proud.

For Rachel, the past six years was a whirlwind. She never thought this day would come. She was not only the first person from her family to complete a bachelor’s degree, but she also obtained a master’s in accounting degree which qualified her to take the Certified Public Accountant (CPA) exam. After commencement, she returned to her hometown to study for the CPA exam and reclaimed her job at the local diner. Passing the CPA exam was a struggle for Rachel. With her parents’ moral support and several attempts, Rachel finally passed all four sections of the exam. Soon afterwards, she accepted an offer as a staff auditor with Hamill and Hill (H2), a nationally recognized accounting firm headquartered in Dallas. She was excited about starting her career and paying off her massive student loans even though the firm’s partners were notorious in public accounting circles for shoddy auditing and questionable business practices. The latest was a very public “cease and desist” order the Securities and Exchange Commission issued for violations of securities laws and the firm’s failure to comply with the Public Company Accounting Oversight Board’s (PCAOB) accepted auditing.

New Beginnings

Rachel was apprehensive about moving to Dallas. Of the 40 new staff auditors, she was the only one not from a prestigious university. Towards the end of new hire orientation, James Heslop, H2’s newest Audit Partner, informed the group about the firm’s mandatory audit training and exam. He cautioned that if the new auditors did not complete the training and pass the exam within their first 90 days would result in their immediate termination. Rachel was cautiously optimistic she would pass the exam until she started studying the on-line training materials. H2’s expectations were significantly more rigorous and challenging than anything she had experienced at state university or even preparing for the CPA exam. She was nervous.

Her participation in time-consuming audit engagements, often working in excess of 75 hours per week plus travel, afforded Rachel little opportunity to study the H2 training materials. On a late-night Friday flight home, she confided in William, one of the other new auditors.

“Have you studied the H2 training materials?” she asked.

He replied, “Yeah, I can’t believe how hard it is.”

“Me too. Even though they give us three attempts to pass the exam, I’m worried. For the past week, every night after work I studied in the hotel. At home last Saturday, I took the on-line exam for the first time and failed miserably,” Rachel commented with distress in her voice.

“How do you feel about your chances of passing the exam with
only two more tries?” William asked.

“Not good,” a dejected Rachel sighed. “On Monday, I’m going to ask Marty, our senior, for hints on how to study for the exam.”

“Let’s discuss with her together. I just started studying and with only 30 days left, I need all the help I can get.”

Rachel replied, “Sounds good,” replacing her earbuds and falling asleep.

The Revelation

After another long day of auditing, the team was finally checking into the hotel when Rachel, William, and a few other new auditors approached Marty.

Rachel asked, “Do you have a minute? We need your help.”

“Sure. What’s up?” Marty asked.

“After studying the audit training materials for over a week, I took the exam, and only got 40% correct,” Rachel commented. “I know you passed the same exam a few years ago. What advise hints do you have for us to study for and pass the exam?”

Already knowing how she was going to reply, Marty asked, “How many of you have worked on group projects during your academic career?” She continued, “The best way to prepare for the audit exam is as a group.”

William protested, “We understand that, but the material is incredibly difficult. Even if we study as a group, we are not confident we will pass even after three tries.”

“How many of you were in a fraternity or sorority? As members, you had access to
special materials that you used to prepare for an exam. Similar
special materials are available for the firm’s audit exam. If you provide me a list of your
personal e-mails, I will e-mail you the
special materials James gave me when he was my senior.” With secrecy in her voice, she commented, “After
studying these
special materials, I am confident you will not have any issue passing the audit exam.” Marty warned, “Do not share these
special materials with anyone under any circumstances. If asked, DO NOT divulge the source of the
special materials. Agreed?”

Signaling group approval, William pulled out a sheet of paper and wrote down his e-mail passing the paper to the other new auditors who eagerly provided their e-mails. When it was time for Rachel to provide her e-mail, she paused wondering, “Is this the first of many instances when the firm will expect me to compromise my ethics or was this just simply some insignificant audit training?”

Case Requirements

1. What is Rachel’s ethical dilemma?

2. As a CPA, what are Rachel’s ethical responsibilities under the
AICPA Code Professional of Conduct? Alternatively as an Associate Chartered Accountant (ACA), what are Rachel’s ethical responsibilities under the
Code of Ethics for Professional Accountants?

3. Discuss what Rachel’s potential responses (participate, decline, report) are for her ethical dilemma and the advantages and disadvantages of each?

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