Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

Accounting 400m/ 500m

Final Exam / Palmer

Spring 2023

 Important Instructions (read first)

1. This exam is intended to measure individual performance.  The test is “open book” and “open notes” but you are not to communicate with any person regarding the contents of the exam or the answers thereto.  All work on the exam is to be exclusively your own.  The Washington University Honor Code applies to this exam and violations will not be tolerated.
.  

2. The Exam consists of 5 pages including this top page.  Please, make sure that you have the complete exam.

3.     Please answer the Questions posed in this Word document and return your answers in a PDF file by submission on the Canvas course page.  Answers are due by 6:00 PM Thursday, March 2, 2023.  

4. In the event that a clarification about the test needs to be made, your instructor will send a communication via the “Announcements” in Canvas.  

Part 1.  Moral Philosophy Question (33 points).

Jim Roberts had had a hard life.  In the depression of 2008, he was jobless and living in a vagrant shelter on the mean streets of Nowhereistan.  Jim’s sister and her two young children had it worse.  Indeed, they were near to starvation.  Frustrated by it all, Jim broke into a local grocery store and stole food for his sister and her children.  As fate would have it, the grocery store had video cameras and Jim was apprehended and sentenced to 2 years in prison.  

Prison life was Nowhereistan was extraordinarily difficult--the living conditions unsanitary, the guards brutal, the prison work back-breaking, and the food meager and of hideous smell and taste.  The Captain of the prison guards – Mr. LeClerc, was an absolute stickler that all prison rules be strictly followed and violations were swiftly and severely punished.  LeClerc held Jim in particular disdain.  However, the Captain was keenly aware of and watchful with regard to Jim’s unique talents.  Specifically, Jim was a phenomenal climber and incredibly strong.  He could lift weights that it normally took 3 men to accomplish.  Using those physical talents, Jim broke out of prison by scaling the wall at the end of his first year in prison.  

Jim was out of prison for six month before he was re-apprehended and locked up again.  The sentence for jail escape was much harsher.  Jim was sentenced to 12 more years of “hard time” in jail.  Jim did the time, but grew indescribably bitter and hateful toward a society that had little care for him, his sister, her starving children, or anything else of value. Everything about society, Jim reasoned, was vile and contemptible.  Jim was proud that he – the ex-con -- was better than others.

After serving the full-term of the second sentence, Jim was re-introduced to society.  However, the introduction did not go well.  In Nowhereistan, companies were allowed to pay convicted felons less than others and businesses were free to discriminate against for convicts.  For example, on his first night out of jail, Jim could not find a hotel that would accept him.  However, an old chaplain took him in to his house and provided him a warm meal and friendly conversation. The chaplain was a poor man himself with but one exception – he owned a beautiful set of the highest quality silverware.  In the middle of the night Jim, full of hate and spite, put the silverware in his sack and ran out the door.

Hours later, Jim was spotted by local police who inquired of the goods in the sack.  Seeing the silver (unusual contents for an obvious ex-convict), he was unceremoniously returned to the chaplain’s home.  They inquired of the chaplain whether the silver that Jim possessed actually belonged to him. The old chaplain greeted the police kindly and thanked them for their assistance but, he said, the silver was actually a gift that he gave to Mr. Roberts.  Further, he noted, Mr. Roberts had forgot to take the very best piece, which he grabbed from inside of the house and inserted into the sack.  He thanked the police for their service but assured them that all was well.  When the police left, the chaplain pulled Jim aside and said, “With this silver I have bought your soul for God.  Use this silver to become an honest man.”  

Overwhelmed, Jim wandered as if in a daze out of town and through the woods.  He struggled to make sense of the great kindness of the chaplain and contemplated the depths to which he had fallen.  While he mused, he spied a young boy walking through the woods.  Still stoked with blind rage and hatred, he robbed the boy of $5 he had in his pocket.  Since Nowhereistan has a “3 strikes” law that commits a person to life imprisonment in jail upon a 3^rd offense, Jim was now in a difficult position.  Nowhereistan was inflexible in the application of the 3-strikes law, and no amount of bribery, individual accomplishment, or political connection would hinder its application.  Jim decided to change his name to Peter Griffith and a weeks later used the silver to start a business.  To “Peter” Jim Roberts no longer existed.

As it turned out, Jim had a 3^rd and even more impressive talent.  He was clever with geology and well able to mine and extract content from certain rocks that were highly valued by local industry. He started his business and over a period of about 15 years, the business grew to over 500 employees and millions in revenue.  The business was the single largest employer in the southwest of Nowhereistan, and employee well-being was highly dependent on Jim’s unique talents.  The lessons Jim learned from the gentle chaplain were not lost on him --- he was well-respected as a kind and generous employer who provided for his employee’s needs.  While the work was hard, Jim paid his employees twice that of others in the area.  However, none of the employees had Jim’s rare skill in geology and a sensible business succession plan was nowhere in sight. The town so appreciated “Peter’s” talent and kindness they elected him Town Mayor in a landslide.  

In August of 2023, a new Chief of Police was assigned to Peter’s town – Mr. LeClerc, former head of the prison guard.  LeClerc had moved on from prison work to a successful career in law enforcement.  His success was widely attributed to his strict no-nonsense adherence to the law.  In LeClerc’s world, no crime should ever go unpunished.  At first, Jim panicked.  But, when they met, it was apparent that LeClerc did not make the connection to “Jim Roberts, prisoner.”  Yet, LeClerc sensed something was not right about the Town Mayor.  He could not puzzle it out, but grew more curious with each passing day.

Later that year, an incredible event occurred.  The Police, who had long pursued Jim Roberts as a “most Wanted Man” had arrested someone fitting his description in a city about 5 miles to the north of Jim’s town.  The real name of the man fitting Jim’s description was M. Balsono.  Balsono was a lifelong criminal.  Unlike Jim, Balsono was rarely caught and, when caught, the type of crimes he had committed were not subject to the “3 strikes” rule.  But if the Court concluded that Balsono was, in fact, Jim Roberts, he would spend the remainder of his life in the insufferable conditions of the Nowhereistan prison.  Balsono insisted he was not Jim Roberts, but given his amazing likeness, the Police did not believe him.  Balsono, living in the lower rungs of society and partially mentally impaired, had no convincing proof of his true identity.  

Peter Griffith (Jim) was just told about the upcoming trial of “Jim Roberts” by an excited LeClerc, who was quite happy to see justice finally done.  He crowed that “few were as deserving of a return to prison as Roberts.”  The trial was scheduled to occur the next day in a courthouse in the nearby city.  Jim, overwhelmed by the news and recollecting the horror of his time in prison, went home to think about what, if anything, he should do. To his mind, he saw only two options: (a) go to the Court, reveal his true identity, and return to prison, or (b) say nothing.  

Required:  

1. Reasoning from each of the philosophical models below, describe the likely decision outcome for Jim.  

a. Egoism

b. Utilitarian

c. Kant’s imperative

d. Virtue ethics

2. Which decision outcome do you think to be “the right thing to do?”  Why would you prefer that option over others?

3. How would you categorize your choice in (2) above by Kohlberg’s Stages of Moral Development?  Explain your reasoning.

Part 2.  Audit Client Relations (50 points).  

Morgan and Jones, CPAs, is a mid-tier accounting firm operating in the Kentucky-Ohio region.  Morgan and Jones (M&J) has about 300 business clients and overall annual revenue of $10 million.  M&J’s largest audit client is Snix & Snax, Incorporated, a food products manufacturer.  Snix and Snax (S&S) is a large private company.  Tom Morgan has been the lead partner on the audit for fifteen years.  He is very comfortable with the M&J’s relationship with S&S over the years and even more so now because the new CFO of S&S (Hao Huang) is a former Manager at M&J who left the firm last year to take on his new role.  Hao and Tom know each other well and were teammates on their high school golf team.  Still today they catch a round of golf together whenever they can.  

S&S pays M&J about $1.1 million per year for their audit work.  Recently, S&S reached out to the consulting arm of M&J to discuss an engagement in which the consulting team would reconfigure the production process at S&S.  The reconfiguration will include installation of high-tech automated material handling equipment and the related interfaces of the equipment with inventory record keeping and financial reporting systems software.  While the total fee for the consulting engagement is uncertain due to contingencies, it is expected to run between $2 million and $3 million dollars in 2022.  Some of that fee will relate to the training of current S&S employees on the new process.  Another component of the fee will support M&J’s ongoing oversight of the new production process for the first six months.  In 2023, the consulting fees are expected to drop to a “maintenance level” of $300,000 per year.

Required.  

1. Identify all potential Morgan and Jones violations of AICPA guidelines found in either the Code of Professional Conduct and Plain English Guide to Independence.  Cite the guidelines at issue.

2. For any one of your potential violations found, identify a possible safeguard that would allow Morgan and Jones to continue both the audit and consulting work for S&S.

Part 3.  Ethical Mini-Cases and Code of Conduct

A. Cases

Case 1. Huang wants to pass the ethics exam so he can become licensed as a CPA and be eligible for a promotion and higher compensation. In order to become licensed, he must pass the ethics exam before his firm’s deadline for new promotions. Sofia has offered to share the exam answers with Huang.

1. Identify at least three options available to Huang at this point.
2. For each option, what would be the potential positive and negative outcomes?

3. If you were in Huang’s position, what would you choose to do? Why?

Case 2.  George has been directed by his new engagement partner to attend a required firm-wide training and then share the exam answers with the rest of the engagement team, allowing the rest of the team to skip the training and continue focusing on an important client deadline.

1. Identify at least three options available to George at this point.

2. For each option, what would be the potential positive and negative outcomes?

3  If you were in George’s position, what would you choose to do? Why?

B. AICPA Code of Conduct

According to the AICPA Code of Professional Conduct (0.300.020.02), members of the AICPA have a responsibility to maintain the public’s confidence.

a.  Why is maintaining the public’s confidence so important to the public accounting profession?

b.  Do you believe the public’s confidence in public accountants would be shaken by revelations of cheating on internal training exams? Why or why not?

C. Integrity and due care

Study the AICPA Code of Professional Conduct’s Integrity Principle in section 0.300.040 and answer the following questions.

a. How does the AICPA Code of Professional Conduct describe what is meant by the word integrity?

b. Would cheating on an internal training exam violate the AICPA Code of Professional Conduct’s “due care” principle (0.300.60)? Please explain.

c. According to the AICPA Code of Professional Conduct (1.000.020), what should an auditor do when facing an ethical conflict such as that faced by George in Case 2 above?

D.  Independence

Why is independence such as important requirement for auditors?  How can auditors be called “independent” if they are paid by their clients?