Case: You are a qualified accountant in practice, and you lead a team providing management consultancy services. In recent years your practice has undertaken several assignments on manufacturing efficiency improvements for a medium-sized, quoted group of companies. It operates through a number of divisions, but line responsibility appears complicated, and so significant control rests with four semi-autonomous regional directors. The authority of these directors is enhanced by their seats on the group’s main board. You have cultivated a good working relationship with the regional director with whom you are in contact most frequently. Three weeks ago that regional director asked you to investigate, as a matter of urgency, a particular project, Project A. He had been irritated to be told, informally, of the likely deferral of the agreed delivery date for the components on this sophisticated design-and-build contract. Project A comes within the regional director’s responsibility primarily because of the location of the factory that makes the key components Once on site, your team had discovered a range of difficulties with the project, starting with fundamental design faults and extending deep into the manufacturing processes. It is clear that various contracts will be breached, and litigation is likely to follow. Your team has produced a prioritised list of actions and begun working to establish a revised schedule to take the project to completion. At a recent meeting, you gave the regional director and the factory manager your estimate that the delay to Project A will be a minimum of three months. You indicated that extra direct costs are likely to be £7 million to £10 million. This is before any potential claims for compensation. On the instructions of the regional director, your team has been working on a formal report specifying detailed recommendations. While still incomplete, the report appears certain to support your previous estimates. You are aware, from the financial press, that the group is rumoured to have difficulties with its bankers. You assume that the situation with Project A is likely to be seriously detrimental to the group’s financial position. One week before the final version of the report is due, you receive a surprise telephone call from the group’s finance director. He explains that he is about to enter a main board meeting, but needs to know a date for delivery of the report on Project A. Late the previous evening, the regional director had informed the finance director that your firm had been asked to provide the report. He says: “I appreciate that you have only just started, so there are no reliable estimates yet. But the regional director mentioned that Project A could incur around £4 million to £5 million in extra costs, with income delayed by perhaps six to eight weeks. The regional director has sent his apologies to the board meeting, as he has to attend a family funeral.” He adds: “Hopefully, the regional director is being cautious, but if something does turn out to be as wrong with Project A as those numbers suggest, the extra costs and deferred income have serious implications for the group’s cash flow. The full board will need to start planning 13 remedial action now. When will your report be ready?” Question: Please Identify relevant ethical issues presented by consulting AICPA Code of Professional Conduct. In your memo response, please site specific sections from the Code of Conduct that you used to resolve the dilemm
Case: You are a qualified accountant in practice, and you lead a team providing management
consultancy services. In recent years your practice has undertaken several assignments on
manufacturing efficiency improvements for a medium-sized, quoted group of companies. It
operates through a number of divisions, but line responsibility appears complicated, and so
significant control rests with four semi-autonomous regional directors. The authority of these
directors is enhanced by their seats on the group’s main board.
You have cultivated a good working relationship with the regional director with whom you are
in contact most frequently. Three weeks ago that regional director asked you to investigate, as
a matter of urgency, a particular project, Project A. He had been irritated to be told, informally,
of the likely deferral of the agreed delivery date for the components on this sophisticated
design-and-build contract. Project A comes within the regional director’s responsibility
primarily because of the location of the factory that makes the key components
Once on site, your team had discovered a range of difficulties with the project, starting with
fundamental design faults and extending deep into the manufacturing processes. It is clear that
various contracts will be breached, and litigation is likely to follow. Your team has produced a
prioritised list of actions and begun working to establish a revised
to completion.
At a recent meeting, you gave the regional director and the factory manager your estimate that
the delay to Project A will be a minimum of three months. You indicated that extra direct costs
are likely to be £7 million to £10 million. This is before any potential claims for compensation.
On the instructions of the regional director, your team has been working on a formal report
specifying detailed recommendations. While still incomplete, the report appears certain to
support your previous estimates.
You are aware, from the financial press, that the group is rumoured to have difficulties with its
bankers. You assume that the situation with Project A is likely to be seriously detrimental to the
group’s financial position.
One week before the final version of the report is due, you receive a surprise telephone call
from the group’s finance director. He explains that he is about to enter a main board meeting,
but needs to know a date for delivery of the report on Project A. Late the previous evening, the
regional director had informed the finance director that your firm had been asked to provide
the report. He says:
“I appreciate that you have only just started, so there are no reliable estimates yet. But the
regional director mentioned that Project A could incur around £4 million to £5 million in extra
costs, with income delayed by perhaps six to eight weeks. The regional director has sent his
apologies to the board meeting, as he has to attend a family funeral.” He adds:
“Hopefully, the regional director is being cautious, but if something does turn out to be as
wrong with Project A as those numbers suggest, the extra costs and deferred income have
serious implications for the group’s cash flow. The full board will need to start planning 13
remedial action now. When will your report be ready?”
Question: Please Identify relevant ethical issues presented by consulting AICPA Code of Professional Conduct. In your memo response, please site specific sections from the Code of Conduct that you used to resolve the dilemma
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