Highland Organic Foods Inc. (HOF) is a publicly-traded company and is audited by the firm Jason Siegal LLP (JS). The 2020 HOF audit was fraught with disputes between management and auditors. After completing the December 31, 2020 audit and issuing an unqualified opinion JS LLP contemplated resigning as the auditors of HOF. After much contemplation, the firm ultimately decided to continue as auditor of HOF and the firm partners collectively decided to rotate the existing HOF engagement partner, Linda Lim, to a new partner, Jim Jones.

Jim has not had any prior contact with HOF or involvement in the audit of its financial statements. Jim is a senior partner with the firm and was chosen because of his strong technical knowledge and his ability to deliver tough messages to clients. After accepting the engagement for the December 31, 2021 audit, Jim obtained the 2020 prior year audit file and reviewed the revenue recognition policy for HOF. The audit file contained a memo that was signed off by Linda analyzing this same issue. After significant analysis, Linda concluded in the memo that the revenue recognition policy at HOF was in compliance with IFRS.   Jim disagreed with Linda’s analysis, he concluded that the revenue recognition policy was not in compliance with IFRS and the financial statements for previous years were materially misstated.   

Jim was very concerned and discussed the issue with another senior partner, Rebecca Ipp, who agreed with Jim’s conclusion. Rebecca suggested that instead of requiring HOF to restate prior periods because of an “error correction” Jim could ask HOF to restate prior periods based on a “change in accounting policy”. Rebecca thought this would soften the impact of the restatement.

Assume you are Jim Jones, complete the following analysis of this ethical issue:

1. Explain the ethical issue that needs to be resolved. (Use case facts and the rules of professional conduct to explain) 

1. Explain who is affected by this issue and how they are affected. 

1. Provide 4 different alternatives available to Jim and describe the consequences of each alternative. 

1. Recommend a course of action for Jim and explain your rationale. 

Answer rating: 100% (QA)

Solution Ans A The ethical issue which was prevailing in the organization is that The revenue recognization policy adopted by Highland Organic Foods I... View the full answer