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[answered] Mike Stephan is a firstyear staff auditor at Willis and Ada


I need help with the homework I need to read attached document and answer on questions 1 to 7:

1.

List at least three alternatives available to Mike?

2.

What are the pros or potential upside of each alternative you listed above?

3.

What are the cons or potential downside of each alternative?

4.

What are the implications of "eating time" for Mike, the firm, and others involved?

5.

Alternatively, what are the implications if Mike decides not to follow Alex's advice and record the accurate time spent on the cash audit?

6.

In your opinion, which of Mike's alternative courses of action would provide the best outcome and why?

7.

How would you handle the ethical issues involved in this situation


Mike Stephan is a first?year staff auditor at Willis and Adams. Mike recently graduated with his undergraduate degree in accounting and was excited about his new job at Willis and Adams. Mike came from a smaller school that typically does not get a lot of attention from campus recruiters. Mike was pleased to get an interview and then an offer from Willis and Adams. From the beginning, Mike was impressed with the firm?s culture and he felt that it would be a great fit for him professionally. Throughout his junior year, he worked hard to reach out to the firm?s recruiters to demonstrate a sincere interest in the firm. In the end, Mike was one of only two students that Willis and Adams hired from his school. Mike believed that his school?s accounting

 

program was quite good, but that it didn?t get the attention other nearby schools did because of its small size. He thought that if he did a good job with the firm his performance might open doors for other students from his school. EarthWear was Mike?s third engagement, and for the most part the audit had gone smoothly. However, in the middle of the audit, Mike found that he was spinning his wheels. After spending

 

over an hour working on the bank reconciliation for the General Cash Account, he was frustrated

 

and confused because he could not figure how to link the supporting documents to the reconciliation. Mike finally asked Roxanne Bailey, from EarthWear?s Controller?s office, to help

 

him sort out the problem. It took Roxanne only a short while to realize that the accounting staff had inadvertently provided Mike with bank deposit slips for the wrong month, which of course did not match up with the bank statements or the reconciliation. Being a new auditor and unfamiliar with EarthWear?s documentation, Mike assumed the supporting documentation provided by the client was correct and that the difficulty and confusion he was experiencing was due to his lack of knowledge and auditing skills. Mike was embarrassed that he had not looked more carefully at the dates. It seemed like it took forever for Roxanne?s staff to track down the correct deposit slips so that Mike could proceed with the planned audit procedures. In total, Mike

 

estimated that he had ?wasted? over two hours. Mike was worried that he would not be able to complete the cash audit area in the eight hours budgeted. As Mike began working on the reconciliation again, Alex Ashwal, Mike?s senior on the audit, stopped by his desk and said:

 

?We are really under the gun with the budget on this audit. I know there were

 

originally eight hours allotted to the cash audit, but I think six hours should be

 

enough. Make sure to be efficient. Let me know if you have any questions so you

 

don?t spin your wheels and end up going over budget.?

 

Mike was too embarrassed to tell Alex about what had happened with the deposit slips. As Mike was talking about reducing the budgeted hours, Mike remembered that when he looked at last year?s working papers the procedures were the same as for the current year and the budgeted hours for cash last year was eight. He had also noticed that the staff person had gone over budget

 

last year. Now Alex wanted Mike to do it in six hours and he had already ?spun his wheels? for two hours.

 

Alex?s words were echoing in Mike?s mind as he worked hard to complete the cash area. As it came time to go home, it became more and more clear that Mike was not going to be able to complete the cash procedures within six hours. After contemplating his situation for a couple minutes he decided that he?d better call Alex and tell him what had happened with the mixed up bank deposit slips. After Mike explained the situation, Alex was silent for a long time and then finally said:

 

?Look, we are just going to have to eat that lost time. I just got done speaking

 

with Dianne and she is adamant about finishing this audit under budget. Dianne

 

is up for promotion to senior manager and I?m sure she doesn?t want an over?

 

budget audit right before the partners meet to decide her promotion. Don?t worry

 

about it, Mike. Stuff happens and it was partly the client?s fault anyway. Just take

 

as long as you need to finish the planned procedures and then put down six hours

 

on the work schedule.? From what Alex said, it seemed that Dianne Morris, the manager on this audit, was the one who was applying the pressure on Alex to keep the audit under budget. But eating time just didn?t feel

 

right. Mike hesitated and then said, ?I don?t know Alex. Don?t you think we?d better just mark down the actual hours?? Alex sighed deeply and said:

 

?Mike I know you are new, but this stuff happens all the time. Think of it as

 

spending a couple extra hours on personal development. In recent planning

 

meetings, the partners have really been stressing the importance of not letting

 

jobs get out of control. An over?budget audit won?t look good for any of us right

 

before performance evaluations. Look Mike, I promise eating time is no big deal

 

?people do it all the time. You want a good performance eval, don?t you? Let?s

 

just dig in and finish up this audit so we can move on to the next engagement.

 

After you finish with cash, I want you to work on accounts receivable. I?ll help get

 

you started and it should go pretty quickly.?

 

With a quick, ?See ya, man,? Alex hung up the phone. His pep talk didn?t help Mike feel any better about what he was being asked to do. Nevertheless, he still had to finish cash before he left

 

for the night. Mike spent the next few hours logging in, examining, and tying out the bank confirmations, wrapping up the testing of bank reconciliations for the various accounts, and completing the necessary documentation in the working papers. He checked his watch as he finally finished and signed off on all the steps in the cash audit program and it was nine o?clock. His head and body ached as he packed up his things and closed down his notebook. He had spent over 10 hours to complete the audit program for cash. As he was pondering on how he should handle the situation, he thought back on those seemingly endless ethics discussions he had to listen to in his auditing and other business classes. They had seemed so boring and irrelevant at the time. But now he remembered one of his professors saying, ?I guarantee that you will be challenged ethically as an accounting professional, and it?ll probably happen sooner than you think. Be prepared!? As Mike walked toward his car, he wished he had listened to those discussions a little

 

more carefully, and he wondered if this might be his first challenge.

 


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