Acctg302 C1 Juggyfroot Case Study

Angela Avalos

ACCTG 302 C1

September 14, 2018

Case Study 2-8 Juggyfroot

As accounting professionals Ricardo and the Deziloo LLP team should approach this ethical dilemma with caution. Even though Juggyfroot is one of their largest customers they shouldn’t jeopardize their careers or the future of the firm by haphazardly agreeing with this request.

Ricardo should instead collect their information, concerns and possible outcomes through the “Integrated Ethical Decision-Making Process” prompt as listed on page 77 of the Ethical Obligations and Decision Making in Accounting text. By using this method, he will be able to define the problem, gather all necessary information, apply the ethical standards and values of both parties, identify and evaluate alternative courses of actions, follow through with the final choice with confidence as well as have the ability to defend their decisions. The following applies the information from the case to the above-mentioned prompt.

Application of the Integrated Ethical Decision-Making Model: Juggyfroot

1. Identify the ethical and professional issues (ethical sensitivity)

GAAP:

• There is no justification under GAAP that would allow this reclassification of the loss.
• The financial statements would not be a fair representation of Juggyfroot’s financial position.  
• Income would be overstated if the $2 million loss was reclassified to the available-for-sale category.

Stakeholders:

• Deziloo LLP
• Ricardo Rikey
• Lucy Sprehoid
• Fred and Ethel
• Norman Baitz, CEO of Juggyfroot
• Juggyfroot
• Future lender or investor

Ethical/Professional Standards:

• AICPA Code of Conduct:

Responsibilities: Deziloo has the responsibility as a CPA to exercise professional and moral judgements in all activities.

The Public Interest: Clients, credit grantors, investors rely on the objectivity and integrity of CPAs, Deziloo would be providing a disservice if agreeing to this request.

Objectivity: CPA’s must perform with impartiality and honesty, free of conflicts of interest. Given the conflict that occurred in the prior year, Deziloo should have terminated their relationship with Juggyfroot.

• IMA Ethical Standards:

Integrity: Deziloo should refrain from engaging and supporting any activity that would discredit their profession, and the business conducted by Juggyfroot.

1. Identify and evaluate alternative courses of action (ethical judgement)

Legal Issues:

• The standards set forth in GAAP would be violated since the financial statements are fraudulent in misrepresenting the income of Juggyfroot.
• Deziloo and Juggyfroot could face criminal charges since it’s a significant material misstatement.

Alternatives/ethical analysis:

• Do nothing, Ricardo and Lucy can agree to not participate in making the reclassification. They risk losing the Juggyfroot as a client, as well as their jobs at Deziloo.
• Confront Norman Baitz with the consequences of going through with this classification. This may prove to be difficult given the prior year altercation of recording revenue in the incorrect year.
• Report the matter to the AICPA Ethics enforcement committee, but again this may be implicating Ricardo’s previous actions which could be detrimental to his future as well as the Deziloo CPA firm.
• Report the matter to the owner and board members of Juggyfroot. They might be unaware of the method Norman Baitz is directing the company and could possibly intervene.

Prevailing ethical theories:

• Utilitarianism. Ricardo and the Deziloo CPA firm should evaluate whether this action is worth the consequences. Since this is not the first time they are linked to malpractice, they must weigh the benefits to the possible outcomes of continuing to practice fraudulently in their firm.  

1. Reflect on the moral intensity of the situation and virtues that enable ethical action to occur (ethical intent)

• Does Ricardo and Lucy want to be responsible for losing Juggyfroot as a client? They would be risking one of their largest customers and possibly their jobs if they deny this request.
• Are Ricardo and Lucy willing to compromise their CPA license, future career and moral high ground by following through with this request? Is keeping Juggyfroot as a client worth the risk?
• Does Deziloo CPA firm want to continue practicing fraudulent financial records? This is not the first time that they have participated in unethical practice per the case study. If they grant this request, it won’t be the last. Juggyfroot will expect them to bend the rules as they see fit.

1. Take action (ethical behavior)

Summary and Conclusion

Given the information, statements and possible outcomes listed above- it’s in the best interest for Ricardo, Lucy and the Deziloo CPA to deny the reclassification request. It is more beneficial to walk away from the situation then to continue making unethical decisions.