ethical violations and auditor negligence

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As an auditor, if you discovered ethical code violations, how would you respond? Are you sure ethical breaches even occurred? How would you deal with auditor negligence? In this Assignment, you will explore these situations and learn how to handle them properly.

1. Tracy Smith, CPA, is in charge of the audit of Olympic Fashions, Inc. Seven young members of the public accounting firm’s professional staff are working with smith on this engagement, and several of the young auditors are avid skiers. Olympics Fashion owns two condominiums in Aspen, Colorado, which it uses primarily to entertain clients. The controller of Olympics Fashions has told Smith that she and any of her audit staff are welcome to use the condominiums at no charge any time that they are not already in use. How should smith respond to this offer? Explain.

2. Gary, Watson, a graduating business student at small college, is currently interviewing for a job. Gary was invited by both Tilly Manufacturing Co. and Watson Supply Company to travel to a nearby city for an interview. Both companies have offered to pay Gary’s expenses. His total expenses for the trip were $96 for mileage on his car and $ 45 for meals. As he prepares the letters requesting reimbursement, he is considering asking for the total amount of the expenses from the employers. His rationale is that if he had taken separate trips, each employer would have had to pay that amount.

  • Who are the parties that are directly affected by this ethical dilemma?
  • Are the other students at the college potentially affected by Gary’s decisions? Explain.
  • Are the professors at the college potentially affected by Gary’s decision? Explain.
  • What would you do in this situation?
  • What would you do if both companies mailed you $ 141 for your expenses with no action on your part?

3. Jensen, Inc. filed against a public accounting firm, alleging that the auditor’s negligence was responsible for failure to disclose a large defalcation that had been in process for several years. The public accounting firm responded that it may have been negligent, but that Jensen, Inc., was really to blame because it had completely ignored the public accounting firm’s repeated recommendations for improvements in internal control.

4. The international CPA firm Arthur Andersen faced significant liability in conjuction with audits of Enron Corporation.

  • From a legal liability perspective, describe the unique features of this case.
  • Describe the important of this audit case for a firm of public accountant.


Whittington, O. R., & Pany, K. (2017). Principles of auditing & other assurance services (20th ed.). New York, NY: McGraw-Hill

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