Ethical Dilemma of a Transaction with United Airlines

The accountants who faced ethical dilemmas in this case were Russell Smith, Cardillo's controller, Helen Shepherd, Touche Ross audit partner, Roger Shlonsky, KMG audit partner, and audit subordinates of both Shepherd and Shlonsky. Initially, Smith received a request from the company's attorney, Riley, to sign an affidavit regarding the nature of a transaction with United Airlines, which he knew was recorded incorrectly. Russell was aware that signing this affidavit would result in a misrepresentation of Cardillo's revenue. Each of the auditors faced ethical dilemmas when pressured by key executives of Cardillo, including the COO, CEO, and vice president of finance, to accept the adjusting entry as booked correctly. Without further investigation of this transaction, the auditors would have violated professional standards of integrity and ethical requirements if they had accepted Cardillo's explanations for the "secret" transaction with United Airlines. The parties who could potentially be affected by the outcomes of these dilemmas include Cardillo, the audit firms involved, investors of Cardillo, creditors, and the general public. If the auditors had agreed to accept the transactions, they would not only have subjected their respective audit firms to litigation risk but also compromised the integrity of the audit since it would not be free of material misstatement. On the other hand, by refusing to accept Cardillo's explanation, the auditors could lose Cardillo as a client. Lastly, the auditors have a responsibility to the public, including investors, creditors, and competitors who rely on the financial statements to be accurate. The auditors must maintain independence to ensure that the financial information is fair to all parties and not biased to benefit Cardillo.