Francine Frost graduated from State University with a degree in accounting five years ago, she was promoted
Question:
Francine Frost graduated from State University with a degree in accounting five years ago, she was promoted to manager last week by the local CPA firm Ross & Denning, LLP. The firm has two partners, Charlie Ross, and managing partner Gary Denning. Francine feels guilty about the promotion because for the past six months she has been moonlighting at night and weekends; trying to develop her own base of clients that would enable her to leave the firm and strike out on her own. She’s one big client away from making her dream come true.
One day Francine was having lunch with Gary Denning when Harry Wall, president of Walt Construction, dropped by to say hello.
“Hey, Harry. Long time no see.” Gary said.
“Gary. What’s it been – five years?” Harry responded.
“That sounds about right,” Gary answered. “Let me introduce you to our newest manager, Francine Frost. Francine is an expert in construction accounting.”
“Wow. I just fired my outside auditor,” responded Harry. “Could I meet with you, Francine, at a convenient time to see if you’d like to come on board?”
Gary looked shocked. He stared at Harry and said, “I just told you she works for our firm. You know the drill, Harry. We might be able to assign Francine to an engagement with you, but it starts with your formally requesting the firm’s help and then we decide whether to pursue the audit opportunity. I’m assuming you aren’t looking for competitive bids from other firms?”
“No. I’m sorry. You misunderstood.” Harry said. “I would never…”
At this point, Gary cuts off Harry and says he understands. Meanwhile, Francine is wondering whether this might be the opportunity she was looking for to provide enough of a client base to hang out her own shingle.
“Listen, Gary,” Harry said. “I’m interested in having Ross & Denning serve our needs. You know I’m a small construction company right now, a family-owned business. But we intend to grow and go public one day.”
“Sounds great,” Gary responds. “How about if I speak to Charlie Ross about coming down to see you and we can go from there?”
“It’s a deal,” responds Harry.
Questions:
1. Do you think it is right for Francine to moonlight on the side while she works full-time for Ross & Denning? Why or why not? Be sure to support your response with ethical reasoning from the AICPA and/or the CA CPA code.
2. Does Francine have a conflict of interest? If so, describe it. If not, explain why not.
3. Assume that you are Francine Frost and you decide to contact Harry Wall to follow up on the lunch discussion. What would you do, if anything, about telling Gary of your intended contact with Wall? The firm does not have a noncompete clause in its employment agreement with staff CPAs. However, there is an IP agreement, that anyone taking intellectual property from the firm would be obligated to pay the one year gross billing should they leave and take the client with them.
4. Assume that you are Francine and decided not to tell Gary. Consider the possible consequences of your action for the stakeholders.
5. Assume that Francine contacts Wall ad tells him she will quit Ross & Denning and will gladly audit Wall’s financial statements as an independent contractor. She informs Wall that whatever Ross & Denning quotes as the fee for the audit engagement, she will charge one-third less. Wall hires Francine, and she quits Ross & Denning without any explanation.
a. What values are illustrated by Francine’s decision that cause you concern?
b. From Charlie Ross’s perspective, what would be your reaction if six months after Francine quit, you run into Harry Wall at a social function, and he tells you how happy he is with Francine’s audit work. Would you discuss the matter with Wall? Why or why not? Would you contact Francine? Why or why not?
Concepts in Federal Taxation
ISBN: 9780324379556
19th Edition
Authors: Kevin E. Murphy, Mark Higgins, Tonya K. Flesher