UNIVERSITY OF THE PEOPLE

MASTERS IN BUSINESS ADMINISTRATION

COURSE:

BUS 5115-01 – BUSINESS LAW, ETHICS AND SOCIAL

RESPONSIBILITY - AY2023-T5

Written Assignment 2

COURSE INSTRUCTOR: Dr. John Halstead

June 26th, 2023.

INTRODUCTION -

The case study, Conflicting Clients between Jennifer Grace, a First year member of her CPA

firm’s management group who is working on the annual audit for Coshocton National Bank and

Tom Ward, who is the CFO of Fantastic Developments, Inc., a client of Coshocton National

Bank (CNB) requesting for a loan from the bank.

Jennifer Grace while working on the annual audit of Coshocton National Bank (CNB)

discovered that Fantastic Developments, Inc. had been selected for a loan confirmation because

of their declared financial position and operating profitability. Jennifer Grace who had done an

audit for Fantastic Developments Inc. in the prior year knew that the financial position of the

company has been a struggling one for a couple years and has been incurring debts.

To get a better clarification, Jennifer contacted the CFO of Fantastic Developments Inc., Tom

Ford for clarification on the company’s miraculous turnaround. She did not get a better

clarification as to how the turnaround took effect but she got to know from the CFO that the

company got another audit firm for its audit needs and apologized for his oversight on not

informing Jennifer Grace about the change.

This new information further confirms the suspicions of Jennifer Grace on the financial position

of Fantastic Development Inc. that it may be fraudulent as well as a possible ignorance of the

bank to its clients’ financial position that could qualify them for a loan.

ETHICAL ISSUES -
Ethical issues are concerned with what is right and wrong, good and bad and how we use that

information to decide our actions (Moneysingh, ND). In this case of conflicting clients, the

ethical issues are as follows;

1. Jennifer Grace can report her suspicion through her company to CNB or report her latest

findings directly to CNB but it is unprofessional to disclose financial information of a

former client.

2. Legally speaking, Jennifer should not disclose Fantastic Developments Inc. financial

position with outsiders without the approval of Fantastic Developments Inc.

3. Even though Jennifer is aware of Fantastic Developments Inc. financial position, she has

no prove that the company’s present financial position has not picked up.

What could be ethically right for Jennifer to do is to fulfill her obligations to her current

engagement with Coshocton National Bank by informing the bank of a possible deceit from

FDI’s financial document. This will save the bank from a bad potential loss through the loan

request from FDI and also save the bank’s stakeholders. This can only be achieved by Jennifer

breaking confidentially rule as she is not under any contract with Fantastic Developments Inc.

On the other hand, if Jennifer’s suspicion turns out true, FDI will lose its loan request from CNB

which may result in the worst case a close down of business for FDI which will sadly affect

FDI’s stakeholders and employees.

STAKEHOLDERS –
A stakeholder is a party that has an interest in a company and can either affect or be affected by

the business (Jason Fernando, 2023). The primary stakeholders in a typical corporation are

its investors, employees, customers, and suppliers.

The stakeholders in this case are:

 Jennifer Grace auditing company, the auditing company’s management as well as its

staff.

 Coshocton National Bank (CNB), its employees, management, customers and

investors/shareholders.

 Fantastic Developments Inc., its employees, management, customers and

investors/shareholders.

Whatever ethically right or wrong decision taken as regards this case will affect the above

stakeholders positively or negatively.

POSSIBLE ALTERNATIVES –

Utilitarianism is an ethical theory that says that the right thing to do in any situation is

whatever will “do the most good” (that is, whatever will produce the best outcomes) taking

into consideration the interests of all concerned parties (Chris MacDonald and Alexei

Marcoux, ND). From the utilitarian perspective, Jennifer can let her suspicion slide without

informing any of the parties. This decision will enable FDI receive the loan it bided for and

likewise a possible increase in profit for CNB. This may be an ethically wrong approach as it

could mean FDI is getting away with financial fraud.

The Rights Perspective approach stipulates that the best ethical action is that which protects

the ethical rights of those who are affected by the action. It emphasizes the belief that all

humans have a right to dignity (Sheila Bonde and Paul Firenze, 2013). From this approach

what is ethical is for Jennifer to inform the audit firm of her suspicion on FDI’s false

financial position since the audit firm’s current obligation is to CNB. The management of the

audit firm can take up the investigation on FDI’s claim on its financial position and if

Jennifer’s suspicion is not clarified, then the bank can be informed about Jennifer’s

suspicion. Though this decision violates the professional code of conduct for professionals on

confidentiality, but since Jennifer or the audit firm is not in any way obligated to FDI and as

the auditor for CNB, it is Jennifer’s obligation to disclose her findings with the bank.

The ethics of justice constitutes an ethical perspective in terms of which ethical decisions are

made on the basis of universal principles and rules, and in an impartial and verifiable manner

with a view to ensuring the fair and equitable treatment of all people (Annatjie Botes, 2001).

In this case, if FDI is guilty of falsifying its financial position in other to get a loan, it will

mean they have contradicted the ethical business practices that percepts that organizations

should undertake their businesses morally by ensuring that they preserve justice, employee

freedom, and safeguard human dignity (Ciulla, 2004). To clear the suspicion of Jennifer

Grace, the just thing is to inform the bank to take necessary steps to make sure every loan

applicants tenders a true representation of their financial position before loans can be

approved.

PRACTICAL CONSTRAINT –
The practical constraint Jennifer may face will be on how to get a tangible evidence that FDI

actually falsified its financial document presented to CNB for the loan applied especially if

FDI is not a public limited liability company that is mandated by law to publicize its financial

position to the public.

Secondly, Jennifer will have to make sure she does not go against her company’s policy on

client confidentiality. She must have to involve the management of the audit firm and

compliance team if she can get an exception due to this case.

If Jennifer’s suspicion turns out to be false after bringing her suspicion to the notice of the

bank without doing her due diligence, she may be termed incompetent and can possibly lose

her job.

SPECIFIC ACTION –

Based on the several scenarios and constraints in this case, I will recommend that Jennifer

Grace tenders her suspicion and findings to the management team of her audit firm. In other

not to disclose its previous client’s financial information, the management of the audit firm

could advice CNB on the reports they should accept from clients who are applying for loan

such as an audited financial statement that a certified public accountant has reviewed and

determined that the financial statement is free from error.

REFERENCES
 From A comparison between the ethics of justice and the ethics of care, Annatjie

Botes, 2001, December 25. https://onlinelibrary.wiley.com/doi/abs/10.1046/j.1365-

2648.2000.01576.x.

 From Making Choices: A Framework for Making Ethical Decisions, Sheila

Bonde and Paul Firenze, 2013, May. https://www.brown.edu/academics/science-

and-technology-studies/framework-making-ethical-decisions#:~:text=The%20Rights

%20Approach&text=This%20approach%20stipulates%20that%20the,have%20a

%20right%20to%20dignity.

 From Justice Theory: Business Ethics, Utilitarianism, Rights, Caring, and Virtue,

IvyPanda, 2022, June 19. https://ivypanda.com/essays/business-ethics-utilitarianism-

rights-justice-caring-and-virtue-theories/.