Nirali Shah

Bonus Ethics Paper

11-19-16
What is the responsibility of the young professional for whistle blowing on practices that may be
considered questionable?

Ted Gulp once said, Whistleblowers is another aspect that needs to be addressed. We
have to restore the protections of whistleblowers and also the encouragement and rewards. It
shouldnt just be that they dont get crucified; it should be that they are again folk heroes, or
celebrate for bringing critical matters to public attention, as opposed to traitors. Our complex
society has had their fair share of whistleblowers throughout history related to the accounting
industry. Some names like Cynthia Cooper from World Com, Sherron Watkins from Enron, Brad
Birkenfeld from UBS, and Richard Bowen from Citigroup. It is crucial for our society to have a
proper ethical code of standards to ensure the appropriate accounting framework is followed in
the industry. The code of ethical standards is used to prevent things like fraud from happening.
However, just like history has told us in the past, people often take these code of ethics and
follow them according to their own interpretation. The ambiguity of these codes cause them to
have grey areas and lead the accountant to debate what is the more ethical thing they should
do. Often times, accountants are faced with the situation of what they should do because there is
no clear cut ethics code or law for every possible situation a practicing CPA could run into. As
we see new whistleblower cases arise in our society, our society rethinks our ethical standards
and makes changes accordingly to the ethical codes to prevent future situations like the ones
stated above from reoccurring.

The decision the accountant makes is important because many people rely on the
accuracy of that information reported. The financial information processed and reported by the
accountant have users like banks, investors, fellow employees, company suppliers, creditors,
analysts, government entities, customers, etc. As a result, unlike other industries with ethical
codes, it is crucial that the accountant chooses the correct decision to make because one incorrect
decision could not only ruin the lives of many users but turn into another fraudulent scandal due
to the implementation of wrong information in the system. The punishment of one wrong
decision like this ranges from probation, losing your CPA license, unemployment, losing
benefits like pension, and even imprisonment! To get an understanding of what these ethical
code of standards are, here are a few of the ethical professional conduct principles listed by the
AICPA on their website. The accountant must carry out their respective responsibilities, perform
in the public interest, perform accounting responsibilities with integrity, objectivity,
independence, and due professional care, as well as observe the scope and nature of services. The
public instills their confidence in the accountants that accountants will abide by these ethical
standards by having independence from mind and appearance as well as the information on
financial statements is presented fairly (AICPA).

In terms of the responsibilities a young professional has for whistle blowing on practices
that may be considered questionable, the decisions an individual makes in the beginning one
their career, will determine how they may handle situations in the future. The beginning part of
ones career is often the most difficult. The reason being is this is when we face the most
difficult ethical situations and how we handle them will affect how people perceive our
professional character for the rest of our career. In the beginning of ones career, we have
pressure from all aspects. We want to keep our clients happy with our work, we want to keep our
boss happy from the results of our work, as well as want our hard work to be appreciated in the
workforce by acknowledgement, harder projects, promotions, and even bonuses. For example,
some ethical decisions we may face are to issue an unmodified opinion on a clients report
because of pressure from the client, we might face pressure from our boss to change the financial
statements to look better in the eyes of our investors, and even face pressure to keep up with the
pace of progression of our coworkers so we dont feel behind or left out. Our Principles of
Auditing book even goes into detail about an ethical situation we may face like reporting hours
worked on a project. The gist of the situation is we worked on a project for a lot longer that the
time budgeted for the project. It is up to us to either report the budgeted time or the actual hours
worked and enclose a description where we believe we shouldnt bill the client for the extra
hours due to our inefficiency (Whittington 69). It goes into further detail about the consequences
of choosing either decision. In the end the book teaches us that it is always better to follow the
more ethical choice because we face less legal liabilities and punishment by choosing the
decision that is in line with the ethical code of standards. In situations like the ones presented
above, there have been accountants who fail to make the ethical decision because they believe
the personal gain is more beneficial to them. This personal gain can range from something as
small as looking better in the eyes of your boss in terms of personal performance to participating
in fraudulent behavior by embezzling the company assets and/or money. Just as the book
explains to us, the accountant always needs to figure out the pros and cons of each type of
decision they could make in the situation faced to fully understand the consequences of their
actions.

However, not all situations involve the accountant being personally involved in the
fraudulent behavior. Over the course of an accountants work life, they will face scenarios where
they are not personally involved in making the questionable decision but are aware that their
boss or coworkers are engaging in unethical behavior. This makes it more difficult to define the
accountants responsibility. On one hand he isnt part of the situation at all but on the other hand
he has a duty to the public to tell them about the unethical behavior his firms workers are a part
of. The decision the accountant makes really comes down to how comfortable they feel with the
higher authority in the firm, how they feel the decision will impact them personally, and if the
accountant can truly define the right and wrong decisions. Since they are a relatively young
professional in the workforce, they dont have that much experience on how to handle many
situations. Due to their limited experience on how to handle these unethical situations, it is
possible that the accountants may fail to detect the behavior as unethical. They might just believe
as a default that their bosses are always acting with independence, integrity, objectivity, and
competency. Young professionals, in new situations like these, might be scared to go against
authority to do what is right in fear of getting fired from their job. Even if they dont get fired,
once the word gets out that he is a whistleblower, their coworkers might trust them less or
become estranged from them in terms of befriending them as a coworker. This can take a toll on
them mentally and make them refrain from telling the truth in future unethical situations they
may face.

What causes one to whistleblow? From the Principles of Auditing textbook, page 95 lists
the factors that lead one to whistleblow. The requirements of this law apply when the client has
committed an illegal act and it as a material effect on the financial statements, senior
management and the board of directors have not taken appropriate remedial actions, and the
failure to take remedial action is reasonably expected to warrant a departure from a standard
audit report, or resignation by the auditors. In situations like these, the auditors must as on as
practicable communicate their conclusions directly to the clients board of directors
(Whittington 95). Within one day, the management of the client must send a notification to the
Securities and Exchange Commission of having received such a communication and they must
send a copy to the auditors. In other situations where illegal activities would cause the auditors of
a public company to lose faith in the integrity of senior management, they will resign and an 8-K
form will be filed with the SEC by management stating the reasons for the auditors resignation.

However, whistleblowing is more complicated than that. There is a very thin line
between doing the right thing and being punished for it. What I mean by this is while auditors are
told to report any wrongdoings to the SEC, they can also be punished because while that is the
lawful thing to do, they are violating ethical standards because they are violating their
confidentiality obligation and rules of professional conduct. Also, while the whistleblower might
want to stay anonymous for security concerns, they have to out themselves if they want any
reward from the SEC for telling them about the scandal. Also, there is a thin line between being a
whistleblower and just doing your rightful duty as an accountant. For example, there are two
categories where accountants may not get whistleblower rewards from the SEC. One is when the
individual with internal compliance or audit responsibilities at an entity, including CPAs, who
receive information about potential violations, cant receive the reward since it is part of their job
responsibilities to report suspicion of illegal acts to management. The second way is CPAs who
are informed about potential violations of a client are required under federal laws not allowed to
receive any award so it doesnt undermine the legal duty and responsibility of an auditor under
the Securities and Exchange Act of 1934. The only way they may receive the reward in this
scenario is if disclosure to the SEC is needed to prevent substantial injury to investors, they
reasonably believe the entity is impending investigation, or 120 days have passed since they
reported the violation (Mintz). This has brought a lot of controversy in the industry as big 4
firms have expressed their concerns to the SEC that the accountant exclusion in whistleblowing
provisions are too narrow. They believe it could cause a conflict of interest as the accountants
must retain client information confidential but are also instructed to tell SEC of any illegal
activities. This makes young professionals especially confused with how to approach unethical
situations because two large entities are telling them to behave in opposite ways. This is truly
where the accountants judgment comes into play.

One of the best ways to learn about whistleblowing on how professionals handled the
situation is to look at examples of whistleblowing cases that have occurred. As I mentioned in
my introduction, some examples were Cynthia Cooper from World Com, Sherron Watkins from
Enron, Brad Birkenfeld from UBS, and Richard Bowen from Citigroup. In case of WorldCom,
Cynthia Cooper uncovered an $11 billion fraud when she was auditing capital expenditures and
she received an email from the controller telling her it was a waste of her time (Pulliam). It
eventually all came together for her when she confronted David Meyers, the controller, and he
confessed. While the email did make her uncomfortable, she stuck with her gut and decided to go
through with the audit anyway. By looking into the account system her team eventually
uncovered $3.8 billion in misallocated expenses. Most of which has no supporting documents!
Another big red flag was their outside auditor, Arthur Andersen, refused to respond to some of
Ms. Coopers questions. In fear of losing their jobs, they worked discreetly and often up late at
night looking into the accounting systems so their boss wouldnt notice. When talking in a 1-1
interview with Wall Street Journal, Cooper said she had fears about how to approach the
situation. On once side she couldve just overlooked it and stopped the audit. However, there was
something about that email that made her feel there was something more behind it. Though she
was going against her boss and didnt ask for her bosses opinion on going forward with her
work, she felt this was the more ethical thing to do. She was glad she trusted herself and went
forward with her work anyways.

Another famous scandal was the Enron scandal that took place in 2002. Sherron Watkins
approached her whistleblowing with another perspective. As opposed to straight telling the
public, she wrote a letter to her boss about the Condor and Raptor partnerships and doom Enron
was going to face (Pelligrini). She felt that Enron would soon implode with various accounting
scandals if no action were taken to fix what was already broke. She only informed her boss, Ken
Lay, and her friend at Arthur Andersen to look into doing an audit on Enron. However, the chain
of telling people progressed. Her friend at Arthur Anderson told Andersens head Enron Auditor,
David Duncan, who then told Congress about the scandal. From her memo, it sounded like she
was telling Lay something he already knew. She warned him of other whistleblowers around
them. Although she didnt really blow the whistle, she was the first one who stood up and
demanded that Enron fix its errors it has made. At that point in time she wasnt worried about
getting fired as much as seeing all these accounting scandals break open and her 8 years at Enron
being worthless on her resume. I think something we can take away from this example was if
you see something really wrong, even though your bosses might not like it, it is worth to point it
out to a higher authority because you are being professionally skeptic and that is your duty. If
nothing is done, then it is important to go through with your gut and get it solved somehow
because investors money is at line. While Sherron couldve just overlooked the problem, she
decided she needed to take one for the team and make sure others know about this huge scandal
that was waiting to explode. Though she might be scared about how this will affect her career
and peoples perceptions of her as a professional, she decided to follow the ethical standards
because it was the right thing to do.

Overall, from the cases weve read about and analyzed in class as well as our knowledge
on what the code of ethical standards say, it is the accountants responsibility to tell an entity of
higher authority if something is wrong with the financial statements that could harm the users of
that information. We face the most difficult ethical situations in the early part of our career and
how we handle them will affect how people perceive our professional character for the rest of
our career. We want to keep our clients happy with our work, we want to keep our boss happy
from the results of our work, as well as want our hard work to be appreciated. However, in the
end, the accountant who is aware of such scandalous information needs to figure out the pros and
cons of each type of decision they could make in the situation faced to fully understand the
consequences of their actions. Their decision really comes down to how comfortable they feel
with the higher authority in the firm, how they feel the decision will impact them personally, and
if the accountant can truly define the right and wrong decisions. One would hope after seeing
poorly made decisions like Enron and WorldCom, workers in the accounting industry would stop
committing fraud. However, till then we must always be vigilant of the work we take part of and
tell higher authority of any errors we see no matter what other consequences we face because it
is the ethical thing to do.
 Works Cited

AICPA Code of Professional Conduct. AICPA Code of Professional Conduct- AICPA. N.p.,
n.d. Web. 20 Nov. 2016.

Pelligrini, Frank. Person of the Wek: Enron Whistleblower Sherron Watkins. Time. Time
Inc., 18 Jan. 2002. Web. 20 Nov. 2016.

Pulliam, Susan. How Three Unlikely Sleuths Exposed Fraud at WorldCom. WSJ. Wsj.com, 30
Oct. 2002. Web. 20 Nov. 2016.

Steven Mintz. They Face the Ethical Dilemmas More Often It Doesnt- Accounting- Acc 563.
They Face the Ethical Dilemmas More Often It Doesnt- Accounting- Acc 563. N.p., 10
Aug. 2011. Web. 20 Nov. 2016.

Whittington, Ray, and Kurt Pany. Principles of Auditing & Other Assurance Services. Boston:
McGraw-Hill/Irwin, 2008. Print.