iaii ethics case incorporating model for ethical decisions aicpa code of professiona 3578407

IAII Ethics Case, Incorporating:

  1. Model for Ethical Decisions
  2. AICPA Code of Professional Conduct



Suppose that Samantha, a client of your tax practice who hires you for occasional financial consulting, is a fellow CPA and the controller of KMR, a small distributor.  She is closing the books for the year. The owner, who is well past retirement age, has announced that a buyer for the business has been secured. Once the sale transaction has been completed, the members of senior management, including Sam, the controller, will receive a significant bonus. This bonus will be the equivalent of 150% of one year’s salary.

While reviewing the balance sheet, Sam noticed that there are a number of expensive inventory items that are potentially obsolete. Usually, inventory turns about once every 90 days, and these have been on the books for almost a year.


Sam has approached the VP of Operations with her concern. He told her that a competitor had devised a better product at a much lower cost. KMR’s product is now unsaleable at any price. However, due to the cost of this product, writing it off would be a material adjustment and would certainly impact the purchase price and may put the entire sale in jeopardy. He says that it would be in everyone’s best interest to ignore it. “The buyer did their due diligence. If they missed it, it’s their problem, not ours.”

Sambrought trked a lifetime for this deal and I’m paying you a lot of money to make it happen.”


Sam knows that everyone will be upset if the sale is not consummated or the bonus amount is reduced. And Sam admits to you that, personally, she needs the bonus!  While Sam can always find another job, the bonus will buy a new car and pay off her student loans. But, Sam also knows that the inventory is not properly stated and this will be discovered at some point in time.


Sam asks you to do some research on what her professional responsibilities are and to provide her with some guidance.  In requesting a documented recommendation from you, she floats the argument that she could always just say thatshe missed it. After all, she’s just the controller, not an operations guy, who would know about the ins and outs of inventory.



Write a business memo to Sam that begins with your overall conclusion about what Sam, as a CPA and member of the AICPA, is professionally obligated to do in this situation.  Then, in 2 single-spaced pages, use the model for ethical decision-making that we discussed in class to explain how you arrived at your conclusion.  IMPORTANT:  Your discussion of the values/principles/rules at stake MUST include a detailed consideration of the relevant portions of the AICPA Code of Professional Conduct.  This element of your memo should constitute approximately HALF of what you write.  Include specific references (with citations and quotations) to support your conclusion.  You should address the following Code topics in your reasoning:


Integrity and Objectivity

Due Care

Accounting Principles Rule

Acts Discreditable


Here is the link for the online version of the Code of Professional Conduct that we checked out in class:



The PowerPoint slides containing the Model for Ethical Decisions are available in Canvas.  You may also refer to the version printed in Chapter 1 of the Spiceland text.



To: Samantha

Date: 1/27/2019

From: Sen

Subject: My suggestion


I write to share my advice about what you should do in terms of the professional obligation. As a CPA and a member of AICPA, you should always perform all professional responsibilities and express the basic tenets of ethical conduct. Under this situation, be honest is your best option. I offer some possible reasons as well.

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