Case Summary
Background - Chitra has started her job with national CPA firm & is facing the following problem, the decision of which will decide the course of her engagement with the firm
Problem Statement - Client (whom Chitra was auditing) was saving on payroll taxes by treating the payment of the employees as payment to independent contractors.
Whom Chitra approached for possible solution:
Ø John – Senior Accountant and immediate boss of Chitra
§ Understood that problem exist, but was unwilling to take any action
§ Asked Chitra to talk to Arvind, the partner in charge of audit
Ø Arvind – Partner in charge of audit
§ He identified problem as a normal practice being followed in any other company
§ He was not willing to take any action, instead warned Chitra that she might lose the account
Ø Ramesh & Harish – Co-workers
§ They confirmed knowledge of the problem
§ They had their own concern that they will be answerable as they had failed to point out this in previous audit
§ They asked Chitra to show spirit of team player and drop the idea of reporting it
Questions
1. What would you do in this situation?
Answer: I would have not reported the same for the following reasons:
I am a new joinee and my job is at stake. Looking at the practical outlook set forth before me, the reporting seems illogical in case I do not want to end my career with the company
The top bosses (& colleagues), from whom the ethics flow, if are reluctant to take any action & are further willing to punish the person, who reports it, make me stick to my decision of not reporting
Also, there is no whistle blower policy, where if I report this issue, the same will not hamper my position in the company & my identity will be kept secret.
2. What role can the board play in helping avoid such situation?
Answer: As stated above, whistle blow policy is a good mechanism to address such issue where the complaint identity is kept secret & the complaint is available for open discussion to top management or any other firm coming from outside to verify it.
Even SOX introduced in 2002 & its legal implication introduced in 2004 is another way to address such issues
3. What are the responsibilities of the firm to its customers and society in general? How do you make choices?
Answer: Customers are the key stakeholders who give revenue to the company. Society in turn is a universal set comprising of every stake-holder of business (supplier, customer, auditor etc) as well as non-customers of the company. Company may not benefit society, but the company shouldn’t do any harm as it will result in overall loss for the planet itself, which will ultimately be faced by the company in due course of time. Hence, triple bottom line concept is now been used by UN (People, Profit & Planet).
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