Cases Mancon 10-12

Case 10 1. Who are the parties that are directly affected by this ethical dilemma? The two clients in Marikina are the parties directly affected by this dilemma. The clients in Marikina are affected because they would be paying “hypothetical” fees, or fees not actually incurred. Furthermore, if the two clients consulted the firm to help improve their condition, and both the clients are wrongfully billed in whole, then the consultant is not fiscally helping the client achieve its objective. 2. Is the image of the consultancy firm potentially affected by Leo’s decision? Explain. Yes. The integrity of the consultancy firm is being put at stake. The consultancy firm is only a medium sized firm for now, which means that it has a great potential for growth. It is only a matter of accepting and performing engagements well, developing long term relationship with clients, and establishing proper fee levels. Double billing, as in this case, is not in pursuant with establishing proper fee levels, which means that it could affect the firm’s growth. No firm wants to have a reputation for over billing. This is one of the critical factors that could make or break the firm. 3. Are the other consultants potentially affected by Leo’s decision? Explain. Yes. It will set a bad example for the other consultants. The firm cannot have employees that double bill. If this happens, the firm can lose not only potential clients, but existing clients. As a consequence, the firm could suffer severe losses which could affect remuneration and ultimately, could cause them their jobs. 4. What would you do in this situation? I will bill them accordingly. Expenses that were incurred for the benefit of both clients must be equally divided to two, while expenses that were incurred exclusively for one client must only be billed for that respective client. Transparency will be observed throughout the engagement, which is why a cover letter with a Statement of Expenses will be sent to the clients. 5. What would you do if both clients paid P 1,400 each for your expenses with no action on your part? I will still show them the cover letter with a Statement of Expenses, showing the actual amounts incurred. Their excess payments will be graciously returned, but if they insist that we keep it, we will. Since the client is aware of the over payment and yet they consented that we keep it, it only means that they have determined the value of the finished engagement to be worth the investment. Case 11 a. Would either Zabio or Zorro violate the Code of Ethics for Professional Accountants by offering to provide these services? Explain. No. only Zabio violates the code of ethics for Professional Public accountants for his services. It is clearly stated in the Code of Ethics for Management Consultants, that consultants should not offer or render professional services under an arrangement whereby the fee is contingent on

findings or results of the service. This arrangement impairs the independence or objectivity of the consultant, and creates a conflict of interest with the client. b. Now assume that Wee has indicated to Zabio that he is leaning toward accepting Zabio’s offer. Zorro then offers to provide the service for 15 percent of Wee’s savings for the next three years. Would performing the engagement in accordance with the terms of this offer violate the Code of Ethics for Professional Accountants? Explain. Yes, the engagement will still violate the Code. The fee is still contingent on concluding that the new payroll system will save Wee’s corporation’s money. It still impairs Zorro’s independence and it creates a conflict of interest with Wee Corp. c. Now go back to the original information (do not consider Zorro’s offer in part [b]). How would your answer in part (a) change in Wee corporation was an SEC registrant (a public company)? It wouldn’t change. Being a SEC registrant doesn’t change the fact that they have to follow the Code of Ethics for Accountants and the Code of Ethics for Management Accountants. As a matter of fact, I will even be stricter in my application of the Code to them, since they are a public company required to comply with the Law. Furthermore, if Wee accepts Zabio’s offer, there is a professional duty or right to disclose this information, since it pertains with the company’s compliance with ethical requirements.

Case 12 a. What action should you take in this situation? I will communicate my findings to the client, and I will recommend them to include the P54, 000 in the liabilities section of their financial statements. I will not issue an unqualified opinion unless they restate their liabilities to the right amount. b. If the client should decline to take any action in the matter, would you insist that the unpaid amount of P 54,000 be included in the liabilities shown on the Statement of Financial Position as a condition necessary to your issuance of a qualified audit report?