Ethical Scenarios
Case Study
Topic of Interest
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Ethics Resources for Accounting Professionals
External Auditors
Ethical Scenarios

Independence and Professional Integrity

Case step 1

Wendy and Mandy were close friends at university.

After graduation, Wendy started her own retail company, WW Co. Ltd., which had been expanding very fast and reporting a high annual turnover.

Case step 2

Mandy pursued a career in accountancy and became a partner in a CPA firm.

WW Co. Ltd. became one of the major accounts of Mandy's firm, contributing 25% of its revenue.

Case step 3

This year, WW Co. Ltd. was facing a very difficult position.

Apart from losing a few major customers, a significant loss was discovered after Mandy's firm completed the year-end audit.

Case step 4

Besides, during the audit some unusual transactions were identified which involved unnecessary complexity and which did not constitute the most logical or secured way to do business.

Wendy failed to provide information regarding the transactions upon Mandy's request.

Case step 5

Although the company had faced a challenging year, Wendy told Mandy that she was negotiating a big order.

If she could successfully apply for a line of credit with a bank to handle the order, WW Co. Ltd.'s position would turn around.

Case step 5

However, Wendy was worried that the bank would not grant credit facilities to WW Co. Ltd. in view of its current financial position.

Wendy suggested that Mandy should use whatever device she could to improve the reported financial position of WW Co. Ltd.

Case step 5

Wendy promised Mandy that she would be "rewarded" afterwards.

But if Mandy refused her request, she had no choice but to appoint another CPA firm next year.

What should Mandy do?

Commentaries on the case

Topic of Interest Case Study Ethical Scenarios
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