The case study, requirement: · Read the question closely; be sure you know what is being asked. Briefly, indicated the facts of the case and write a brief outline of what you want to fit into your 3 pages. · Identify the dilemma: explain the ethical issue and support for alternative choices. Contrast reasons using prepositions: benefit/consequences of doing or not doing… · Explain the benefits/ consequences in terms of who, when, dollar amount, and certainty positive and negative consequences. Consider long run versus short run consequence. · Choose one position and explain the reason it is more ethical than the alterbatives refuting your support for the other positions. Where there is a dilemma, explain why ethical support for one choice is better than support for the other choices. Explain why this case is important. Case also can be found at the attached PDF file page 491. Please use the knowledge related to the book. No outside resource allowed. Thanks. Case 7-8 Diamond Foods On November 14, 2012, Diamond Foods Inc. disclosed restated financial statements tied to an accounting scandal that reduced its earnings during the first three quarters of 2012 as it took significant charges related to improper accounting for payments to walnut growers. The restatements cut Diamond’s earnings by 57 percent for FY2011, to $29.7 million, and by 46 percent for FY2010, to $23.2 million. By December 7, 2012, Diamond’s share price had declined 54 percent for the year. A press release issued by the company explains in great detail the accounting and financial reporting issues. 1 Diamond Foods, long-time maker of Emerald nuts and subsequent purchaser of Pop Secret popcorn (2008) and Kettle potato chips (2010), became the focus of an SEC investigation after The Wall Street Journal raised questions about the timing and accounting of Diamond’s payments to walnut growers. The case focuses on the matching of costs and revenues. At the heart of the investigation was the question of whether Diamond senior management adjusted the accounting for the grower payments on purpose to increase profits for a given period. The case arose in September 2011, when Douglas Barnhill, an accountant who is also a farmer of 75 acres of California walnut groves, got a mysterious check for nearly $46,000 from Diamond. Barnhill contacted Eric Heidman, the company’s director of field operations, on whether the check was a final payment for his 2010 crop or prepayment for the 2011 harvest. (Diamond growers are paid in installments, with the final payment for the prior fall’s crops coming late the following year.) Though it was September 2011, Barnhill was still waiting for full payment for the walnuts that he had sent Diamond in 2010. Heidman told Barnhill that the payment was for the 2010 crop, part of FY2011, but that it would be “budgeted into the next year.” The problem is under accounting rules, you cannot legitimately record in a future fiscal year an amount for a prior year’s c ...

1. The case study,
requirement:
· Read the question closely; be sure you know what is being
asked. Briefly, indicated the facts of the case and write a brief
outline of what you want to fit into your 3 pages.
· Identify the dilemma: explain the ethical issue and support for
alternative choices. Contrast reasons using prepositions:
benefit/consequences of doing or not doing…
· Explain the benefits/ consequences in terms of who, when,
dollar amount, and certainty positive and negative
consequences. Consider long run versus short run consequence.
· Choose one position and explain the reason it is more ethical
than the alterbatives refuting your support for the other
positions. Where there is a dilemma, explain why ethical
support for one choice is better than support for the other
choices. Explain why this case is important.
Case also can be found at the attached PDF file page 491.
Please use the knowledge related to the book. No outside
resource allowed.
Thanks.
Case 7-8
Diamond Foods
On November 14, 2012, Diamond Foods Inc. disclosed
restated financial statements tied to an accounting scandal
that reduced its earnings during the first three quarters
of 2012 as it took significant charges related to improper
accounting for payments to walnut growers. The restatements
cut Diamond’s earnings by 57 percent for FY2011, to
$29.7 million, and by 46 percent for FY2010, to $23.2 million.
By December 7, 2012, Diamond’s share price had declined
54 percent for the year. A press release issued by the company
explains in great detail the accounting and financial
reporting issues. 1
Diamond Foods, long-time maker of Emerald nuts and

2. subsequent purchaser of Pop Secret popcorn (2008) and
Kettle potato chips (2010), became the focus of an SEC
investigation after The Wall Street Journal raised questions
about the timing and accounting of Diamond’s payments to
walnut growers. The case focuses on the matching of costs
and revenues. At the heart of the investigation was the question
of whether Diamond senior management adjusted the
accounting for the grower payments on purpose to increase
profits for a given period.
The case arose in September 2011, when Douglas
Barnhill, an accountant who is also a farmer of 75 acres of
California walnut groves, got a mysterious check for nearly
$46,000 from Diamond. Barnhill contacted Eric Heidman,
the company’s director of field operations, on whether the
check was a final payment for his 2010 crop or prepayment
for the 2011 harvest. (Diamond growers are paid in
installments,
with the final payment for the prior fall’s crops coming
late the following year.) Though it was September 2011,
Barnhill was still waiting for full payment for the walnuts that
he had sent Diamond in 2010. Heidman told Barnhill that the
payment was for the 2010 crop, part of FY2011, but that it
would be “budgeted into the next year.” The problem is under
accounting rules, you cannot legitimately record in a future
fiscal year an amount for a prior year’s crop. That amount
should have been estimated during 2010 and recorded as an
expense against revenue from the sale of walnuts.
An investigation by the audit committee in February 2012
found payments of $20 million to walnut growers in August
2010 and $60 million in September 2011 that were not
recorded in the correct periods. The $20 million payments
to growers in 2010 caught the eye of Diamond’s auditors,
Deloitte & Touche. However, it is uncertain whether the firm
approved the accounting for the payments. It is an important
determination because corporate officers can defend against
securities fraud charges by arguing they did not have the

3. requisite intent because they relied on the approval of the
accountants.
The disclosure of financial restatements in November 2012
and audit committee investigation led to the resignation of
former
CEO Michael Mendes, who agreed to pay a $2.74 million
cash clawback and return 6,665 shares to the company.
Mendes’s cash clawback was deducted from his retirement
payout of $5.4 million. Former CFO Steven Neil was fired on
November 19, 2012, and did not receive any severance.
As a result of the audit committee investigation and the
subsequent analysis and procedures performed, the company
identified material weaknesses in three areas: control
environment,
walnut grower accounting, and accounts payable
timing recognition. The company announced efforts to
remediate
these areas of material weakness, including enhanced
oversight and controls, leadership changes, a revised walnut
cost estimation policy, and improved financial and operation
reporting throughout the organization.
An interesting aspect of the case is the number of red
flags, including unusual timing of payments to growers,
a leap in profit margins, and volatile inventories and cash
flows. Moreover, the company seemed to push hard on every
lever to meet increasingly ambitious earnings targets and
allowed top executives to pull in big bonuses, according to
interviews with former Diamond employees and board members,
rivals, suppliers and consultants, in addition to reviews
of public and nonpublic Diamond records.
Nick Feakins, a forensic accountant, noted the relentless
climb in Diamond’s profit margins, including an increase in
net income as a percent of sales from 1.5 percent in FY2006
to more than 5 percent in FY2011. According to Feakins,
“no competitors were improving like that; even with rising
Asian demand . . . it just doesn’t make sense.” 2 Reuters did a

4. review of 11 companies listed as comparable organizations in
Diamond’s regulatory filings and found that only one, B&G
Foods, which made multiple acquisitions, added earnings
during the period.
Another red flag was that while net income growth is generally
reflected in operating cash flow increases, at Diamond,
the cash generation was sluggish in FY2010, when earnings
were strong. This raises questions about the quality of earnings.
Also, in September 2010, Mendes had promised EPS
growth of 15 percent to 20 percent per year for the next
five years. In FY2009, FY2010, and FY2011, $2.6 million
of Mendes’s $4.1 million in annual bonus was paid because
Diamond beat its EPS goal, according to regulatory filings.
It was expected that the company would likely face a civil
enforcement action by the SEC for not maintaining accurate
books and records and failing to maintain adequate internal
controls to report the payments properly, both of which are
required for public companies. If the SEC decides to bring
1 Available at
www.investor.diamondfoods.com/phoenix.zhtml?c=
189398&p=irol-newsArticle&id=1758849 .
2 Available at www.reuters.com/article/2012/03/19/us-
diamondtax-
idUSBRE82I0AQ20120319 .
Chapter 7 Earnings Management and the Quality of Financial
Reporting 469
a civil fraud case against any individuals at Diamond Foods,
the Dodd-Frank Act gives it the option of filing either an
administrative case or a civil injunctive action in Federal
District Court. An administrative proceeding is generally
considered a friendlier venue for the SEC.
Questions
1. One of the red flags identified in the case was that operating
cash flow increases did not seem to match the level of
increase in net income. Explain the relationship between
these two measures and why it raised questions about the

5. quality of earnings at Diamond Foods.
2. Why were the actions of Diamond Foods with respect to its
‘accounting for nuts’ unethical?
3. The role of Deloitte & Touche is unclear in the case. We
do not know whether the firm approved the accounting
for the payments to walnut growers and periods used to
record these amounts. Assume that the firm identified
the improper payments and discussed the matter with
management (i.e., CFO and CEO). What levers might
Deloitte use to convince top management to correct the
materially misstated financial statements?
Ethical Obligations
and Decision Making
in Accounting
Text and Cases Third Edition
min622IX_fm_i-xxii.indd imin622IX_fm_i-xxii.indd i
02/09/13 12:29 PM02/09/13 12:29 PM
This page intentionally left blank
Ethical Obligations
and Decision Making
in Accounting
Text and Cases Third Edition
Steven M. Mintz, DBA, CPA

6. Professor of Accounting
California Polytechnic State University,
San Luis Obispo
Roselyn E. Morris, Ph.D., CPA
Professor of Accounting
Texas State University–San Marcos
min622IX_fm_i-xxii.indd iiimin622IX_fm_i-xxii.indd iii
02/09/13 12:29 PM02/09/13 12:29 PM
ETHICAL OBLIGATIONS AND DECISION MAKING IN
ACCOUNTING: TEXT AND CASES,
THIRD EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York,
NY 10121. Copyright © 2014 by McGraw-Hill
Education. All rights reserved. Printed in the United States of
America. Previous editions © 2011 and 2008. No part
of this publication may be reproduced or distributed in any form
or by any means, or stored in a database or retrieval
system, without the prior written consent of McGraw-Hill
Education, including, but not limited to, in any network
or other electronic storage or transmission, or broadcast for
distance learning.
Some ancillaries, including electronic and print components,
may not be available to customers outside the
United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 0 DOW/DOW 1 0 9 8 7 6 5 4 3

7. ISBN 978–0–07–786221–3
MHID 0–07–786221–X
Senior Vice President, Products & Markets: Kurt L. Strand
Vice President, Content Production & Technology Services:
Kimberly Meriwether David
Managing Director: Timoth Vertovec
Brand Manager: James Heine
Marketing Manager: Constantine Karampelas
Development Editor: Gail Korosa
Director, Content Production: Terri Schiesl
Project Manager: Judi David
Buyer: Jennifer Pickel
Cover Image: Dynamic Graphics/Jupiterimages
Compositor: S4Carlisle Publishing Services
Typeface: 10/12 Times New Roman
Printer: Quad/Graphics
All credits appearing on pages or at the end of the book are
considered to be an extension of the copyright page.
Library of Congress Cataloging-in-Publication Data
Mintz, Steven M.
Ethical obligations and decision making in accounting: text and
cases / Steven M. Mintz, DBA, CPA,
Professor of Accounting California Polytechnic State
University, San Luis Obispo Roselyn E. Morris, PhD, CPA,
Professor of Accounting Texas State University-San Marcos. —
Third edition.
pages cm
ISBN 978-0-07-786221-3—ISBN 0-07-786221-X 1.
Accountants—Professional ethics—United States—
Case studies. I. Morris, Roselyn E. II. Title.
HF5616.U5M535 2014
174'.4—dc23

8. 2013011582
The Internet addresses listed in the text were accurate at the
time of publication. The inclusion of a website
does not indicate an endorsement by the authors or McGraw-
Hill Education, and McGraw-Hill Education
does not guarantee the accuracy of the information presented at
these sites.
www.mhhe.com
min622IX_fm_i-xxii.indd ivmin622IX_fm_i-xxii.indd iv
02/09/13 12:29 PM02/09/13 12:29 PM
v
“Whatever we learn to do, we learn by doing it.”
— Aristotle
We hope this book inspires students to engage
in the learning process, to make ethical choices
in their lives, and always strive for excellence in
whatever they do.
Dedication
min622IX_fm_i-xxii.indd vmin622IX_fm_i-xxii.indd v
02/09/13 12:29 PM02/09/13 12:29 PM
vi
About the Authors

9. STEVEN M. MINTZ, DBA, CPA, is a professor of accounting
in the Orfalea College
of Business at the California Polytechnic State University–San
Luis Obsipo. Dr. Mintz
received his DBA from George Washington University. His first
book, titled Cases in
Accounting Ethics and Professionalism, was also published by
McGraw-Hill. Dr. Mintz
develops individual courses in professional accounting ethics
for Bisk Education that meet
each state’s board of accountancy mandatory requirements for
continuing education in
ethics. He also writes two popular ethics blogs under the names
“ethicssage” and “work-
placeethicsadvice.” Dr. Mintz has received the Faculty
Excellence Award of the California
Society of CPAs and Service Award from the California Board
of Accountancy for his
work on the Advisory Committee on Accounting Ethics
Curriculum.
ROSELYN E. MORRIS, PH.D., CPA, is a professor of
accounting in the Accounting
Department at the McCoy College of Business, Texas State
University–San Marcos.
Dr. Morris received her Ph.D. in business administration from
the University of Houston.
She is a past president of the Accounting Education Foundation
and a member of the
Qualifications Committee of the Texas Board of Public
Accountancy. Dr. Morris has
received the Outstanding Educator Award from the Texas
Society of CPAs.
Both Professors Mintz and Morris have developed and teach an
accounting ethics course

10. at their respective universities.
min622IX_fm_i-xxii.indd vimin622IX_fm_i-xxii.indd vi
02/09/13 12:29 PM02/09/13 12:29 PM
vii
Preface
Why Did We Write This Book?
The first edition of Ethical Obligations and Decision Making
in Accounting: Text and
Cases was written in the wake of the dot.com bubble and
accounting scandals at companies
such as Enron and WorldCom. The second edition was written
in the wake of the financial
meltdown of 2007–2008 that was due to high-risk lending and
borrowing practices. The
result of these scandals has been an increased call by
professional and regulatory bodies
for ethics education of accounting students in values, ethics,
and attitudes to support pro-
fessional and ethical judgments and act in the public interest.
We dedicate ourselves to this
goal through our book.
Several states now require their accounting students to
complete an ethics course
prior to certification. Texas was first state to do so, and it
requires accounting students
in Texas and those moving into the state to complete an ethics
course at a Texas uni-
versity or in their home institution. California and Colorado
require separate account-

11. ing ethics courses; states such as Maryland, New York, and
West Virginia also have
separate ethics course requirements. This book is written to
enable instructors to
address the content material that state boards typically expect to
be covered in qualify-
ing courses.
Ethical Obligations and Decision Making in Accounting was
written to guide students
through the minefields of ethical conflict in meeting their
responsibilities under the pro-
fessions’ codes of conduct. Our book is devoted to helping
students cultivate the ethical
commitment needed to ensure that their work meets the highest
standards of integrity,
independence, and objectivity. We hope that this book and
classroom instruction will work
together to provide the tools to help you make ethical judgments
and carry through with
ethical actions.
Our book blends ethical reasoning, components of behavioral
ethics, reflection, and
the principles of ethical conduct that embody the values of the
accounting profession.
We incorporate these elements into a framework to consider the
ethical obligations of
accountants and auditors and how to make ethical decisions that
address the following
material:
• The role of moral and cognitive development in ethical
reasoning, ethical judgment, and
ethical orientation

12. • Professional codes of conduct in accounting
• Ethical corporate governance systems
• Fraud detection and prevention
• Legal and regulatory obligations of auditors
• Whistleblowing obligations of accountants and auditors
• Earnings management issues and the quality of financial
reporting
• Ethical systems, global ethics standards, and corporate
governance considerations in
doing business worldwide
Attributes of This Textbook
Ethical Obligations and Decision Making in Accounting is
designed to provide the
instructor with comprehensive coverage of ethical and
professional issues encountered
by accounting professionals. Our material provides the best
flexibility and pedagogical
min622IX_fm_i-xxii.indd viimin622IX_fm_i-xxii.indd vii
02/09/13 12:29 PM02/09/13 12:29 PM
viii Preface
effectiveness of any book on the market. To that end, it includes
numerous features
designed to make both learning and teaching easier, such as:
• Ethical reflections that set the tone for each chapter
• 160 discussion questions
• 76 cases (10 per Chapters 1–7 and 6 in Chapter 8), about
one-third of which are from the

13. SEC enforcement files
• 6 additional major cases that can be used for
comprehensive testing, a group project, a
research assignment, or a capstone to the book
• Dozens of additional cases and instructional resources,
which are available to enrich
student learning
• Links to videos for instructors
Pedagogical approach:
• The book is comprehensive enough to serve as a stand-
alone text, yet flexible enough
to act as a co-text or supplementary text across the accounting
curricula or within an
auditing or financial accounting course.
• There is sufficient case and supplementary material to
allow the instructor to vary the
course over at least two to three terms.
• The writing style is pitched specifically to students,
making the material easy to follow
and absorb.
• Group discussions and role-play opportunities using case
studies
• Video links to bring case material to life
The Instructor Edition of the Online Learning Center,
www.mhhe.com/mintz3e,
offers materials to support the efforts of first-time and seasoned
instructors of accounting
ethics. A comprehensive Instructor’s Manual provides teaching

14. notes, grading sugges-
tions and rubrics, sample syllabi, extra cases and projects, and
guidelines for incorporating
writing into the accounting ethics course; a Test Bank that
provides a variety of multiple-
choice, short answer, and essay questions for building quizzes
and tests; additional cases
that can be assigned, including some that were not carried over
from the first and second
editions; links to videos to enhance the learning experience and
bring case discussions
to life; and PowerPoint presentations for every chapter make a
convenient and powerful
lecture tool.
Changes in This Edition
The behavioral approach to ethics leads to understanding and
explaining moral behavior
in a systematic way. We have expanded our discussion of ethics
beyond the traditional
philosophical moral reasoning methods that teach students how
they should behave when
facing ethical dilemmas and now also engage them to
understand their own behavior better
and compare it to how they would ideally like to behave. We
incorporate those discussions
in addressing ethical obligations of accountants and auditors
under professional codes of
conduct and in areas such as whistleblowing considerations
under Sarbanes-Oxley (SOX)
and the Dodd-Frank Financial Reform Act.
This revision also includes:
• Emphasis on values, ethics, and behaviors in a professional
setting

15. • Expanded coverage of professional codes of conduct and
failure to maintain indepen-
dence, integrity, objectivity, and professional skepticism
• New audit requirements and clarified Statements on
Auditing Standards effective in
2014 that collectively better address financial statement fraud
and the risk of material
misstatements
min622IX_fm_i-xxii.indd viiimin622IX_fm_i-xxii.indd viii
02/09/13 12:29 PM02/09/13 12:29 PM
Preface ix
• Broadened perspective on earnings management, including
the role of earnings expec-
tations, the use of accruals, income smoothing, risk assessment
and materiality, and
financial restatements
• Public interest and ethical considerations in developing
international financial report-
ing standards, cultural considerations when operating overseas,
corporate governance
systems, and global bribery
• Restoring public trust and confidence in the accounting
profession
This edition of Ethical Obligations and Decision Making in
Accounting has dozens of
new discussion questions. The material that was replaced to

16. keep the book fresh is avail-
able to instructors in the Instructor’s Manual for testing
purposes. For the first time, we
provide video links to many of the cases in the book in the IM.
In a project of this kind, errors are bound to occur. As authors,
we accept full responsi-
bility for all errors and omissions. We welcome feedback on the
book and suggestions for
improvements. The authors have collectively had more than 30
years of experience teach-
ing accounting ethics and welcome the opportunity to share our
insights with you on how
best to use the book and teach ethics to accounting students.
Acknowledgments
The authors want to express their sincere gratitude to these
reviewers for their comments
and guidance. Their insights were invaluable in developing this
edition of the book.
Russell Calk
New Mexico State University
Jeffrey Cohen
Boston College
Dan Hubbard
University of Mary Washington
Lorraine Lee
University of North Carolina–Wilimington
Stephen A. McNett
Texas A&M University–Central Texas
Barbara Porco
Fordham University

17. We also appreciate the assistance and guidance given us on this
project by the staff
of Mc-Graw-Hill Education, including Tim Vertovec, Managing
Director; James Heine,
Executive Brand Manager; Michelle Nolte, Marketing Manager;
Lori Bradshaw, develop-
ment editor; Judi David, project manager; Jennifer Pickel,
buyer; Studio Montage, design
coordinator; and Prashanthi Nadipalli, media project manager.
We greatly appreciate the role
of Shyam Ramasubramony, project manager, and Susan
McClung, copyeditor of the book.
Finally, we would like to acknowledge the contributions of our
students, who have pro-
vided invaluable comments and suggestions on the content and
use of these cases.
If you have any questions, comments, or suggestions
concerning Ethical Obligations
and Decision Making in Accounting, please send them to us at
[email protected] and
[email protected]
Steve Mintz
Rosie Morris
min622IX_fm_i-xxii.indd ixmin622IX_fm_i-xxii.indd ix
02/09/13 12:29 PM02/09/13 12:29 PM
x
Case Descriptions

18. Case # Case Name/Description
1-1 Harvard Cheating Scandal
Student cheating at Harvard raises questions about
responsibilities of instructors and student
personal responsibilities
1-2 Giles and Regas
Dating relationship between employees of a CPA firm
jeopardizes completion of the audit.
1-3 NYC Subway Death: Bystander Effect or Moral Blindness
Real-life situation where onlookers did nothing while a man was
pushed to his death off a
subway platform.
1-4 Lone Star School District
Failure to produce documents to support travel expenditures
raises questions about the
justifiability of reimbursement claims.
1-5 Reneging on a Promise
Ethical dilemma of a student who receives an offer of
employment from a firm that he wants to
work for, but only after accepting an offer from another firm.
1-6 Capitalization versus Expensing
Ethical obligations of a controller when pressured by the CFO
to capitalize costs that should be
expensed.
1-7 Eating Time
Ethical considerations of a new auditor who is asked to cut
down on the amount of time that he
takes to complete audit work.

19. 1-8 A Faulty Budget
Ethical and professional responsibilities of an accountant after
discovering an error in his sales
budget.
1-9 Cleveland Custom Cabinets
Ethical and professional responsibilities of an accountant who is
asked to “tweak” overhead to
improve reported earnings.
1-10 Telecommunications, Inc.
Concerns about the ethics of engineers who accept free travel
and lodging from a foreign entity
after establishing the criteria for a contract awarded to that
entity.
Case # Case Name/Description
2-1 WorldCom
Persistence of internal auditor, Cynthia Cooper, to correct
accounting fraud and implications
for Betty Vinson, a midlevel accountant, who went along with
the fraud
2-2 Better Boston Beans
Conflict between wanting to do the right thing and a
confidentiality obligation to a coworker.
2-3 The Tax Return
Tax accountant’s ethical dilemma when asked by her supervisor
to ignore reportable lottery winnings.
min622IX_fm_i-xxii.indd xmin622IX_fm_i-xxii.indd x
02/09/13 12:29 PM02/09/13 12:29 PM

20. 2-4 Shifty Industries
Depreciation calculations and cash outflow considerations in a
tax engagement.
2-5 Blues Brothers
Identifying enablers and disablers of ethical action and ways to
convince others of one’s point
of view.
2-6 Supreme Designs, Inc.
Ethical dilemma of an accountant who uncovers questionable
payments to his supervisor.
2-7 Milton Manufacturing Company
Dilemma for top management on how best to deal with a plant
manager who violated company
policy but at the same time saved it $1.5 million.
2-8 Juggyfroot
Pressure imposed by a CEO on external accountants to change
financial statement
classification of investments in securities to report a market
gain in earnings.
2-9 Phar-Mor
SEC investigation of Phar-Mor for overstating inventory and
misuse of corporate funds by
the COO.
2-10 Gateway Hospital
Behavioral ethics considerations in developing a position on
unsubstantiated expense
reimbursement claims.
Case # Case Name/Description

21. 3-1 The Parable of the Sadhu
Classic Harvard case about ethical dissonance and the
disconnect between individual and
group ethics.
3-2 Amgen Whistleblowing Case
Whistleblower’s termination after raising issues about the
company’s underreporting of
complaints and problems with pharmaceutical drugs.
3-3 United Thermostatic Controls
Acceptability of accelerating the recording of revenue to meet
financial analysts’ earnings
estimates and increase bonus payments.
3-4 Hewlett-Packard
Use of false and fraudulent means to obtain confidential
information from members of the
board of directors.
3-5 IRS Whistleblower and Informing on Tax Cheats
Ethics of gathering sensitive information about wrongdoing to
qualify for whistleblower
payouts.
3-6 Bennie and the Jets
Ethical and professional obligations in reporting accounting
wrongdoing to higher-ups in the
organization.
3-7 Exxon-XTO Merger
Alleged breach of fiduciary duties of the board of directors of
XTO Energy that arose from
ExxonMobil’s takeover of XTO.

22. 3-8 Disclosure of Steve Jobs’s Health as Apple CEO: A Public
or Private Matter?
Shareholder rights to receive negative information about the
health of its CEO.
Case Descriptions xi
min622IX_fm_i-xxii.indd ximin622IX_fm_i-xxii.indd xi
02/09/13 12:29 PM02/09/13 12:29 PM
3-9 Bhopal, India: A Tragedy of Massive Proportions
Evaluation of the decision-making process before, during, and
after the leak of a toxic chemical
that killed or injured thousands.
3-10 Accountability of Ex-HP CEO in Conflict of Interest
Charges
Sexual harassment charges stemming from conflict of interest
between CEO/board chair and
outside contractor.
Case # Case Name/Description
4-1 America Online (AOL)
Internet-based company’s improper capitalization of advertising
costs and the use of
“round-trip” transactions to inflate revenue and earnings.
4-2 Beauda Medical Center
Confidentiality obligation of an auditor to a client after
discovering a defect in a product that
may be purchased by a second client.
4-3 Family Games, Inc.

23. Ethical dilemma for a controller being asked to backdate a
revenue transaction to increase
performance bonuses in order to cover the CEO’s personal
losses.
4-4 First Community Church
Misappropriation of church funds and subsequent cover-up by a
member of the board of trustees.
4-5 Lee & Han, LLC
Alteration of work papers and ethical obligations of auditors.
4-6 Gee Wiz
Ethics of working for employer’s customer on the side and
evaluating the customer’s receivable
account.
4-7 Family Outreach
Questions about validity of expense accounts and ethical
obligations of the state auditor.
4-8 HealthSouth Corporation
Manipulation of contractual allowances to overstate net
revenues, and auditors’ inability to
gather the evidence needed to stop the fraud.
4-9 Healthcare Fraud and Accountants’ Ethical Obligations
Stakeholder considerations and ethical obligations upon
discovering Medicare fraud.
4-10 Independence Violations at PwC
Investigation of PwC independence procedures after self-
regulatory peer review fails to identify
violations.
Case # Case Name/Description

24. 5-1 Computer Associates
Audit committee’s role in identifying premature revenue
recognized on software contracts.
5-2 ZZZZ Best
Fraudster Barry Minkow uses fictitious revenue transactions
from nonexistent business to
falsify financial statements.
5-3 Imperial Valley Thrift & Loan
Role of professional skepticism in evaluating audit evidence on
collectability of loans and going
concern assessment.
xii Case Descriptions
min622IX_fm_i-xxii.indd xiimin622IX_fm_i-xxii.indd xii
02/09/13 12:29 PM02/09/13 12:29 PM
5-4 Audit Client Considerations and Risk Assessment
Risk assessment procedures prior to deciding whether to submit
a competitive bid for an audit
engagement.
5-5 Krispy Kreme Doughnuts, Inc.
“Round-trip” transactions used to inflate revenues and earnings
to meet or exceed financial
analysts’ EPS guidance.
5-6 Dunco Industries
Role and ethical responsibilities of accounting professionals in
assessing the validity of audit
evidence.

25. 5-7 First Community Bank
Valuation of loan loss impairment and risk assessment.
5-8 Fannie Mae: The Government’s Enron
Comprehensive case covers manipulation in four areas to
project stable earnings—derivatives,
loan fees, loan loss reserves, and marketable securities.
5-9 Royal Ahold N.V. (Ahold)
U.S. subsidiary of a Dutch company that used improper
accounting for promotional allowances
to meet or exceed budgeted earnings targets.
5-10 Groupon
Competitive pressures on social media pioneer leads to internal
control weakness and financial
restatements.
Case # Case Name/Description
6-1 SEC v. Halliburton Company and KBR, Inc.
Bribery allegations against Halliburton and the application of
the Foreign Corrupt Practices
Act (FCPA).
6-2 Con-way Inc.
Facilitating payments and internal control requirements under
the FCPA.
6-3 Insider Trading and Accounting Professionals
Insider trading by accounting professionals and providing tips
to friends.
6-4 Anjoorian et al.: Third-Party Liability
Application of the foreseeability test, near-privity, and the

26. Restatement approach in deciding
negligence claims against the auditor.
6-5 Vertical Pharmaceuticals Inc. et al. v. Deloitte & Touche
LLP
Fiduciary duties and audit withdrawal considerations when
suspecting fraud at a client.
6-6 SEC v. DHB Industries, Inc., n/k/a Point Blank
Solution
s, Inc.
SEC action against independent directors and audit committee
members in a securities fraud case.
6-7 Livingston & Haynes, P. C.
Evaluation of ordinary negligence, gross negligence, and fraud
in a securities violation.
6-8 Kay & Lee LLP
Auditor legal liability when foreseen third party relies on
financial statements
6-9 Reznor v. J. Artist Management (JAM), Inc.
Legal liability of manager of lead singer of Nine Inch Nails
based on allegations of mismanagement.

27. 6-10 SEC v. Zurich Financial Services
Complex accounting for reinsurance transactions and transfer of
economic risk.
Case Descriptions xiii
min622IX_fm_i-xxii.indd xiiimin622IX_fm_i-xxii.indd xiii
02/09/13 12:29 PM02/09/13 12:29 PM
Case # Case Name/Description
7-1 Nortel Networks
Use of reserves and revenue recognition techniques to manage
earnings.
7-2