Posted: November 8th, 2016

David Robinson, an audit senior assigned to the audit engagement team for Belot Enterprises, faces a dilemma common to auditors.

Synopsis

David Robinson, an audit senior assigned to the audit engagement team for Belot Enterprises, faces a dilemma common to auditors.  Client management has taken an aggressive position regarding the period-ending balances of several large discretionary expense accruals, including the company’s allowances for bad debts and inventory obsolescence.  Robinson discovered the client’s new accrual strategy while performing review procedures on the company’s financial statements for the recently ended second quarter.  The end of that quarter coincided with the end of the “Nail the Number” campaign organized by Belot’s new chief operating officer (COO).  The goal of the corporate-wide campaign was to significantly improve Belot’s year-over-year operating results for the second quarter. Zachariah Crabtree, Belot’s longtime accounting general manager, came up with the idea to “tighten” the quarter-ending accruals as his contribution to the Nail the Number campaign.  Crabtree is the primary client contact person for Robinson at Belot.  Over the past several years, Crabtree has been very generous with his time to Robinson, resulting in a strong friendship developing between the two accountants.  That friendship is complicating Robinson’s decision regarding how to deal with the aggressive accruals.  In fact, Crabtree has attempted to convince Robinson to simply “pass” on those accruals and not bring them to the attention of the audit manager and audit partner assigned to the engagement. Complicating Robinson’s decision even further is that recently he has become more intent on pursuing a long-term career with his Big Four employer as the result of a meeting with the Belot audit engagement partner.  The partner told Robinson that he is “partner material” and should become more focused on planning his career with the firm.  Robinson realizes that he could “score points” with the partner by dealing firmly with the controversy over Belot’s accruals.  The case ends with Robinson considering how he plans to deal with the dilemma that he faces.

Assignments

Analyze this case with following four steps. When you examine this case, cite appropriate accounting treatment if available.

1. Explain the case

2. Identify controversial issues with relevant standards (standards should be shown)

3. Suggest alternatives to the issues

4. Make logical connections between issues and your conclusions