Ethical dilemma 16: Judge and jury

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In 2008, ICAS Research published the report "What do you do now? Ethical Issues Encountered by Chartered Accountants" by Dr David Molyneaux containing 28 true life case studies of ethical dilemmas faced by accountants either in practice or business.

In recognition of this work, in 2009 the ICAS Technical Policy Board then published "Shades of Grey" containing a further series of case studies, one of which is reproduced below.

The views expressed in these respective case studies are those of the Ethics Committee and do not necessarily represent the views of the Council of ICAS.

This case study gives general guidance only and should not be relied on as appropriate or comprehensive in respect of any particular set of circumstances. It is recommended that users consider seeking their own professional advice.

The authors or the publisher can accept no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.


You are an audit partner in a local office of a large accountancy firm TTZ LLP. One of your biggest clients is Bonnieclyde Ltd, a company which undertakes major construction projects such as building new roads, motorways etc.

Until last year the company had been very profitable but the economic downturn has started to hit the company hard. You are preparing for the final audit meeting with the client at which you will discuss your main findings and any adjustments which are required to the accounts.

The big issue is clear "Is the company still a going concern?" This issue has caused you many sleepless nights of late - you like the people who run this company and you are well aware of the impact that the closure of this business would have on the local community. You are also well aware that it would most likely have a negative impact on your immediate career prospects.  

The company's year-end was 31 August and your firm carried out most of its work during October. At that time everything looked fine, however, recently you noticed that one of the company's major customers, Dudsareus Ltd had been placed in administration.

Although you are not sure of the amount of work carried out post year-end you do know that further work was carried out for this client. You are also aware that at the company's year-end Dudsareus Ltd owed Bonnieclyde Ltd £1,800,000.

You were aware that Dudsareus Ltd were disputing the amount due but such a stalling tactic was commonplace in the industry - you had fully expected the vast majority of the sum due to be paid. This is all now in doubt.  

At the meeting with the client, you are surprised to find that the Financial Director is not able to attend the meeting due to ill health. After the usual small talk you ask whether the client has made any provision in relation to the amount due from Dudsareus Ltd and also whether it has updated its projections to take account of this. Dan, the company's Chief Executive, advises you that he does not believe this to be necessary.

He informs you that the administrator has advised him that Dudsareus Ltd will be able to meet all of its current outstanding debts. You advise Dan that you sincerely hope that this will indeed be the case but that you will need to check with the administrator directly.

Dan asks why this is necessary as he is happy to give you a letter to that effect. You advise Dan that you have to do your job.  

Dan stands up and starts shouting:  

"You have been our auditor for years, at the first sign of trouble you appear willing to help the bank shut our doors, the effect of which will be a disaster for the local community and also for your firm.

Many of your neighbours work for this company, what will they think, what will their children think? This will impact on your own children at school. All we are asking for is time - to let us trade out of this situation. As far as I am concerned, the accounts will not be altered. You can do as you wish - however, remember what I have told you - local communities need businesses like ours. I will let them know who caused the closure of this business, if that is what it comes to!"  

What do you do now? 

Scenario Analysis

What are the readily identifiable ethical issues for your decision?  

For you personally  

  • Is the Chief Executive serious about his proposed intentions that could affect your family?
  • The need to be truthful and honest with your client - You have a responsibility to issue an opinion on the truth and fairness of the financial statements on behalf of your firm and auditing standards require you to gather sufficient evidence to allow you do this.
  • If the full debt due from Dudsareus Ltd has to be written off, what is the current financial position of the company?

Who are the key parties who can influence, or will be affected by, your decision?

  • You
  • Your fellow partners
  • The Chief Executive and other directors of Bonnieclyde Ltd
  • The shareholders (if different from the directors)
  • The employees
  • The bank
  • Any other creditors
  • The customers

What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?  


The need to be truthful and honest with your client. You have a responsibility to issue an opinion on the truth and fairness of the financial statements and auditing standards require you to gather sufficient evidence to allow you to do this.  


It is imperative that you retain your objectivity in order that you can remain in the role of auditor.

Professional competence and due care  




Professional behaviour  

The need to follow all relevant standards. This will require you to obtain sufficient audit evidence on which to base your audit opinion. If the client attempts to prevent you from obtaining the necessary evidence then the repercussions should be explained to the client.

Is there any further information (including legal obligations) or discussion that might be relevant?  

The likely level of debt recovery that the administrator expects. Additionally, what other contracts is the company currently working on and how profitable are they?

Likewise, what other contracts is the company contracted to commence work on and how profitable are they forecast to be?

Is there a conflict between the 'Guardian' and 'Commercial' strands of an accountant's responsibilities?  

There may be commercial pressures to help the client to maintain its funding package with the bank, however, the 'Guardian' role requires that the auditor has to report on whether the financial statements show a true and fair view of the company's financial performance and position.  

Based on the information available, is there scope for an imaginative solution?


Are there any other comments?  



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