Question

1. Analyze this problem using virtue ethics as a way of examining ethical behavior.

2. What would be best to do in this case?

While reviewing the current-year audit working papers of Coshocton National Bank (CNB), the engagement manager, Jennifer Grace, noted something curious. In the working papers related to loan valuation, Jennifer saw that the commercial loan of Fantastic Developments had been randomly selected for confirmation but that Fantastic had not responded to either the initial or second confirmation request. The audit staff disposed of this “loose end” by alternate procedures: examining cash collections (which had become somewhat sporadic) and vouching to underlying loan documentation, including a set of recent (unaudited) financial statements that showed Fantastic’s solid financial position and operating profitability. Jennifer noted this reference to Fantastic Developments because this private company was also a client of her firm. In fact, Jennifer had served as the audit senior on the prior-year audit of Fantastic. She knew that the company had been struggling for a couple of years and had experienced recurring operating losses. Her knowledge of Fantastic did not reconcile with the discussion in the audit working papers related to the financial statements furnished to the bank. When Jennifer contacted Fantastic’s CFO, Tom Ward, and inquired about the company’s apparently miraculous turnaround, he was noncommittal and unhelpful. Tom replied that business had picked up. He apologized for not calling Jennifer’s firm himself because he had been so busy, and then he told her that Fantastic had decided to engage another CPA firm for its accounting and auditing needs. Although confused, Jennifer obviously couldn’t reject the possibility that this abrupt dismissal was a direct consequence of her inquiry. As a result, Jennifer wonders whether the financial statements which Fantastic furnished to the bank as a basis for a loan application are fraudulent. The bank apparently has no such suspicion, however.

Answer 1

Virtue ethics emphasizes character and virtue rather than on consequences or duties. In this case, Jennifer Grace should inform the people at Bank, about whatever information she knows regarding the firm Fantastic development. It is always better to be safe. The Bank can take measures to obtain confirmation request rather taking alternate measures. Jennifer cannot let go of her doubts, when she has many reasons to doubt it. It is the best thing to inform the authorities at Bank, as she is reviewing their current audit papers. She cannot be lenient when she can clearly see many red flags. Irrespective of the consequences she needs to do the right thing. She needs to do it, not because of her duty but it is the right thing to do.