ACC 306 Week 5 DQ1 Ethics Case 20-5

Ethics Case 205 Softening the blow ? LO1 LO2 LO3

Late one Thursday afternoon, Joy Martin, a veteran audit manager with a regional CPA firm, was reviewing documents for a long-time client of the firm, AMT Transport. The year-end audit was scheduled to begin Monday.

For three months, the economy had been in a down cycle and the transportation industry was particularly hard hit. As a result, Joy expected AMTs financial results would not be pleasant news to shareholders. However, what Joy saw in the preliminary statements made her sigh aloud. Results were much worse than she feared.

Larry (the company president) already is in the doghouse with shareholders, Joy thought to herself. When they see these numbers, theyll hang him out to dry.

I wonder if hes considered some strategic accounting changes, she thought, after reflecting on the situation. The bad news could be softened quite a bit by changing inventory methods from LIFO to FIFO or reconsidering some of the estimates used in other areas.

Required:

1.How would the actions contemplated contribute toward softening the bad news?

2.Do you perceive an ethical dilemma? What would be the likely impact of following up on Joys thoughts? Who would benefit? Who would be injured?