Professionalism and ethics) and ((Internal controls)

(Professionalism and ethics)

1. Ethics cases (Stocks, K.D. and S. Albrecht. a?Ethical Dilemmasa? in The Internal Auditor. June 1993, pp. 24 a 25)

a. Upon graduating from Ethics University five years ago, you accepted a job with Peat & Price CPAs. After three years with that firm, you joined MiniCare Health Company as an audit senior and are now an audit manager with that company. Not long after being promoted to audit manager, you noticed that the executives of the company were doing things that you didnt think were appropriate. The company over billed Medicare on several occasions, and several members of senior management were abusing their positions by taking company perks that were against the companys code of conduct. You have talked to your superior, the financial vice president. He has, in essence, told you to mind your own business. He told you that auditors are to report on controls and assist management, not question it. You are currently making $100,000 a year, far more than you could earn in another company at this stage in your career. Which elements of the IMA Ethical Code are the companyas executives violating? Use the Langenderfer and Rockness eight-step framework to decide how you would respond to this situation. (100 words)

b. You are an auditor for International Pharmaceutical Company (IPC), a company that has invested over $200 million in developing a new drug. For tax purposes, the related research and development expenses were written off as deductible expenses on IPCs U.S. corporate tax returns. When the drug was patented, your company set up a Puerto Rican subsidiary to manufacture the drug. The company then transferred the patent to the subsidiary and arranged to purchase the drug from the subsidiary at a high price. IPC justified the transfer price as reasonable because of the high value of the patent, which is now owned by the subsidiary company. You are concerned because you think the price being charged by the subsidiary is excessive and is being used to inflate costs and minimize taxes paid to the U.S. government. You know that tax rates are considerably less in Puerto Rico than in the U.S. Is the company violating any elements of the AICPA Code of Professional Conduct? If so, which? Use the Langenderfer and Rockness eight-step framework to decide how you would respond to this situation. (100 words)

(Internal controls)

2. In each of the following independent situations, identify internal control deficiencies and make suggestions regarding their correction / improvement. (CMA adapted, December 1992)

a. Many employees of a firm that manufactures small tools pocket some of these tools for their personal use. Since the quantities taken by any one employee were immaterial, the individual employees did not consider the act as fraudulent or detrimental to the company. As the company grew larger, an internal auditor was hired. The auditor charted the gross profit percentages for particular tools and discovered higher gross profit rates for tools related to industrial use than for personal use. Subsequent investigation uncovered the fraudulent acts. (100 words)

b. A company controller set up a fictitious subsidiary office to which he shipped inventories and then approved the invoice for payment. The inventories were sold and the proceeds deposited to the controlleras personal bank account. Internal auditors suspected fraud when auditing the plantas real estate assets. They traced plant real estate descriptions to the assets owned and leased, and could not find a title or lease for the location of this particular subsidiary. (100 words)

c. The manager of a large department was able to embezzle funds from his employer by carrying employees on the payroll beyond actual termination dates. The manager carried each terminated employee for only one pay period beyond the termination date so the employee would not easily detect the additional amount included on the W-2 reporting of wages to the Internal Revenue Service. The paymaster regularly delivered all checks to the department manager who then deposited the fraudulent checks to a personal checking account. An internal auditor discovered the fraud from a routine tracing of sample entries in the payroll register to the employeesa files in the personnel office. The sample included one employeeas pay record whose personnel file showed the termination date prior to the pay period audited. The auditor investigated further and discovered other such fraudulent checks. (100 words)


The first one is about (Professionalism and ethics). The second case is about (Internal controls).