The Audit

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Date Submitted: 11/28/2012 07:59 PM

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The Audit

Stephanie Tran

Professor Andy Liebman

BUSA 435A – Business Policy

September 25, 2012

Main Problem

In this particular case of The Audit, Sue’s client had a classification system that was wrongly classified. The client was intentionally treating a large number of its employees as independent contractors to avoid payroll taxes such as federal, state, and security taxes, as well as avoiding benefits being offered such as paid sick leave, vacation, health insurance, and stock options.

Relevant Laws & Codes to the Ethical Situation

Sue, the auditor, should be verifying the company’s standards according to accounting standards with a good ethical viewpoint. She can do so by abiding by accounting standards according to the Generally Accepted Accounting Principles (GAAP) that includes the standards, conventions, and rules in recording, summarizing, and preparing for financial statements for this particular company. She can also go by the Common Law Test to measure the controls and directions that the company has over the workers to really distinguish whether or not they are classified as employees or independent contractors.


In Sue’s situation, she has incompatible ethical beliefs with the national CPA firm that she is working for. Since the issue was brushed aside when she addressed the situation to higher management, her senior accountant, she should go forth to the Internal Revenue Service (IRS) to report the problem. Contrary to this option, she can be a “team player” and neglect that the practice was ethically wrong to ensure the safety and stability of her job as well as her coworkers.

Pros & Cons of Options

Option 1: Sue reports the problem to the IRS.

|Pros |Cons |

|She would not sign off on the audit, avoiding future consequences|She would loose her job at the CPA firm,...