Independence Analysis

Independence Analysis

Individual Assignment #1:

Independence Analysis

Prepared for: Dr. Jacquelyn Moffitt Prepared by: Kayla Boudreaux

March 3, 2011 Ethics 7401

I have neither given nor receive any unauthorized aid on this assignment, nor have I observed or heard of anyone else doing so.

Kayla Boudreaux

3/4/2011

Key Facts:

After graduating from college, Marie Jones began her career at a regional public accounting firm located in Kegan, Arizona called, XYZ CPA firm (XYZ). Additionally, she obtained her Certified Public Accountant (CPA) license, and currently serves as the auditor in charge at XYZ. Growing up, Marie was encouraged by her parents, and through community service, to maintain high standards and solid ethical values. Fortunately, XYZ also maintains high ethical and professional standards, which have proven to align well with Marie's personal values. Now retired, Marie's parents are financially supported by social security, in addition to a few stock and bond investments made by her father, which substantially supplement the social security income. Marie now has a husband and two children, thus reinforcing her strong family values.

Marie is currently auditing Good Bank (Bank), which is a publicly held institution, and has grown considerably in recent years, even reaching international regions. However, while auditing the Bank, Marie noted several significant real estate loans had deteriorated since the previous engagement, as well as a few of the Bank's international loans. Additionally, the Bank's stock price is currently selling for $35, but the reserves are obviously not adequate because of the deteriorating loan conditions. Thus, Marie deduces from this information that the Bank's stock price could potentially drop below $10, causing the dividend to most likely be discontinued until conditions improved.

During a recent visit to her parent's house, Marie discovers, through a discussion with her father, that they depend on dividends for retirement income. Her father also commented that he was satisfied with the stock he bought last year in Good Bank since the company had been paying a solid dividend. Additionally, Marie's father admitted to having invested 1/3 of their retirement funds in the Bank's common stock, since he felt more comfortable doing so with local bank. Not surprisingly, Marie was in disbelief and shocked to hear such news, since she knew the true financial condition of Good Bank, and its possibly grim future. Motivated by her father's news, Marie decided to review her firm's conflict of interest policy. Upon review, Marie determined that her parent's stock ownership in Good Bank was not considered a conflict of interest, based on the fact that they are not her dependents.

Ethical Dilemma(s):

According to our Ethics textbook, a professional accountant is called upon in his or her professional code to "hold himself or herself free from any influence, interest or relationship in respect of his or her client's affairs, which impairs his or her professional judgment or objectivity or which, in the view of a reasonable observer would impair the member's professional judgment or objectivity." Stated simply, a conflict of interests occurs when the independent judgment of a person is swayed, or might be swayed, from making decisions in the best interest of others who are relying on that judgment. Specifically, professional accountants are expected to make judgments that are in the public's interest. Consequently, there are two distinct aspects to be kept in mind: the reality of having a conflict of interests, and the appearance that one might be present. Furthermore, A special or conflicting interest could include "any interest, loyalty, concern, emotion, or other feature of a situation tending to make the decision maker's judgment less reliable that it would normally be, without rendering the decision maker incompetent. Thus, financial interests and family connections are the most common sources of conflict of interest.

Thus, ethical dilemmas arise for a variety of reasons in the business world. Four of the most

common reasons are as follows:

1. Selfishness and personal gain

2. Profit