Prairieland Bank EthicsEssay Preview: Prairieland Bank EthicsReport this essayCase No.1Read the following case, and then answer the given questions.To Resign or Serve?The Prairieland Bank was a medium-sized, Midwestern financial institution. The management had a good reputation for backing successful deals, but the CEO (and significant shareholder) had recently moved to San Francisco to be “close to the big-bank center of activity”. He commuted into the Prairieland head office for two or three days each week to oversee major deals. Lately the bank’s profitability had decreased, and the management had begun to renegotiate many loans on which payments had fallen behind. By doing so, the bank was able to disclose to them as current, rather than non-performing, as the unpaid interest was simply added to the principal to arrive at the new principal amount. Discussions were also under way on changing some accounting policies to make them less conservative.
Ben Hunt, the audit partner on the Prairieland Bank account, was becoming concerned about the risk associated with giving an opinion on the fairness of the financial statements. During the early days of the audit, it became evident that the provision for doubtful loans was far too low, and he made an appointment to discuss the problem with the CEO and his vice president of finance. At the interview, Ben was told that the executives knew the provision was too low, but they didn’t want to increase it because that would decrease their reported profits. Instead, they had approached a company that provided insurance to protect leased equipment, such as earth movers, against damage during the lease, and arranged for insurance against non-payment on the maturity of their loans. As a result, they said, any defaults on their loans would be made up from the insurance company, so they didn’t see any point to increase the provision for loan losses for disclosing the insurance arrangement.
When he heard of this, Ben expressed concern to the Prairieland management, but they were adamant. Because Prairieland was such a large account, he sought the counsel of James London, the senior partner in his firm who was in charge of assessing such accounting treatments and the related risk to the auditing firm. James flew out to confer with Ben, and they decided that the best course of action was to visit the client and indicate their intent to resign, which they did. After dinner, James was waiting at the airport for his plane home. By coincidence, he met Jack Lane, who held responsibilities similar to his own at one of the competing firms. Jack was returning home as well and was in good spirits. On the flight, Jack let it slip that he had just picked up an old client of James’s firm – the Prairieland Bank.
In February, the Prairieland team met to decide their next move. James was eager to prove that his firm’s clients were doing a good job of managing their financial affairs. In September, James made a presentation to clients at a meeting at J.P. Morgan: We needed to know – at this stage in the process – that we were going to be getting some business done. We knew these issues would come up, and we needed to start thinking about the best course of action, particularly because it took an extensive amount of thought for the Prairieland strategy. James and Jack wanted us to be as clear with them as possible about what we should do. James wanted us to have an explanation in writing. James wanted us to be very clear, particularly in regard to how the client was going to pay for services, even after the client was paid, that it was OK to do so without even thinking about it, a very important decision. But James believed the Prairieland team was willing to be open to the advice they had received from the private and public institutions of J.P. Morgan and to see if there was a firm process that could be used, given that the firm was a private company in itself with an established business process. They insisted we keep that answer for our clients, because the Prairieland team would not have had to come forward to the bank or be very clear with them. James is one of the great lawyers of our profession. I think everybody who knows me is an admirer of his. His insight is absolutely valuable, and I think he and James’s success together as the chief counsel to the bank was so significant. Their relationship was extremely cordial, and I think it would be much appreciated if this was all done in the same manner. The Prairieland team also met with their boss, Chief Financial Officer Tony Finney, on a basis in which he wanted more transparency. I have to confess that I was surprised at the enthusiasm of this meeting, that a key question was posed to each of the Prairieland partners. Finney offered me a variety of alternatives when it came time to meet with me, including one I had no idea about at the time, and another I did not think about. After the meeting, the Prairieland team decided to close down the firm for good. It was my recollection that we considered closing down for good. However, I had been thinking of it only twice before. I had a discussion about it with Finney and thought, no, this doesn’t really work well. I thought, well, we’d be open for good if that sounds very good to you and me. We came up with ideas that could be implemented. It was pretty much at my last meeting with Tony. The next morning, James and Tony brought me home with it. The next day, it looked like the Prairieland team was closing down for good. Then, one day in November, they decided to try and close down the firm for good. Not wanting to face any uncertainty, we were asked to write to James directly so that he would talk about closing any bad debts incurred before
In February, the Prairieland team met to decide their next move. James was eager to prove that his firm’s clients were doing a good job of managing their financial affairs. In September, James made a presentation to clients at a meeting at J.P. Morgan: We needed to know – at this stage in the process – that we were going to be getting some business done. We knew these issues would come up, and we needed to start thinking about the best course of action, particularly because it took an extensive amount of thought for the Prairieland strategy. James and Jack wanted us to be as clear with them as possible about what we should do. James wanted us to have an explanation in writing. James wanted us to be very clear, particularly in regard to how the client was going to pay for services, even after the client was paid, that it was OK to do so without even thinking about it, a very important decision. But James believed the Prairieland team was willing to be open to the advice they had received from the private and public institutions of J.P. Morgan and to see if there was a firm process that could be used, given that the firm was a private company in itself with an established business process. They insisted we keep that answer for our clients, because the Prairieland team would not have had to come forward to the bank or be very clear with them. James is one of the great lawyers of our profession. I think everybody who knows me is an admirer of his. His insight is absolutely valuable, and I think he and James’s success together as the chief counsel to the bank was so significant. Their relationship was extremely cordial, and I think it would be much appreciated if this was all done in the same manner. The Prairieland team also met with their boss, Chief Financial Officer Tony Finney, on a basis in which he wanted more transparency. I have to confess that I was surprised at the enthusiasm of this meeting, that a key question was posed to each of the Prairieland partners. Finney offered me a variety of alternatives when it came time to meet with me, including one I had no idea about at the time, and another I did not think about. After the meeting, the Prairieland team decided to close down the firm for good. It was my recollection that we considered closing down for good. However, I had been thinking of it only twice before. I had a discussion about it with Finney and thought, no, this doesn’t really work well. I thought, well, we’d be open for good if that sounds very good to you and me. We came up with ideas that could be implemented. It was pretty much at my last meeting with Tony. The next morning, James and Tony brought me home with it. The next day, it looked like the Prairieland team was closing down for good. Then, one day in November, they decided to try and close down the firm for good. Not wanting to face any uncertainty, we were asked to write to James directly so that he would talk about closing any bad debts incurred before
In February, the Prairieland team met to decide their next move. James was eager to prove that his firm’s clients were doing a good job of managing their financial affairs. In September, James made a presentation to clients at a meeting at J.P. Morgan: We needed to know – at this stage in the process – that we were going to be getting some business done. We knew these issues would come up, and we needed to start thinking about the best course of action, particularly because it took an extensive amount of thought for the Prairieland strategy. James and Jack wanted us to be as clear with them as possible about what we should do. James wanted us to have an explanation in writing. James wanted us to be very clear, particularly in regard to how the client was going to pay for services, even after the client was paid, that it was OK to do so without even thinking about it, a very important decision. But James believed the Prairieland team was willing to be open to the advice they had received from the private and public institutions of J.P. Morgan and to see if there was a firm process that could be used, given that the firm was a private company in itself with an established business process. They insisted we keep that answer for our clients, because the Prairieland team would not have had to come forward to the bank or be very clear with them. James is one of the great lawyers of our profession. I think everybody who knows me is an admirer of his. His insight is absolutely valuable, and I think he and James’s success together as the chief counsel to the bank was so significant. Their relationship was extremely cordial, and I think it would be much appreciated if this was all done in the same manner. The Prairieland team also met with their boss, Chief Financial Officer Tony Finney, on a basis in which he wanted more transparency. I have to confess that I was surprised at the enthusiasm of this meeting, that a key question was posed to each of the Prairieland partners. Finney offered me a variety of alternatives when it came time to meet with me, including one I had no idea about at the time, and another I did not think about. After the meeting, the Prairieland team decided to close down the firm for good. It was my recollection that we considered closing down for good. However, I had been thinking of it only twice before. I had a discussion about it with Finney and thought, no, this doesn’t really work well. I thought, well, we’d be open for good if that sounds very good to you and me. We came up with ideas that could be implemented. It was pretty much at my last meeting with Tony. The next morning, James and Tony brought me home with it. The next day, it looked like the Prairieland team was closing down for good. Then, one day in November, they decided to try and close down the firm for good. Not wanting to face any uncertainty, we were asked to write to James directly so that he would talk about closing any bad debts incurred before
Required:Identify the potential stakeholders of the Prairieland Bank and explain their respective interest. (10 marks)
Which decision was considered as a right decision: (i) James London’s auditing firm should resign from the Prairieland Bank or (ii) James London’s auditing firm should continue to serve the Prairieland Bank? Give your justifications on the chosen decision.
(10 marks)Advice James London on what should he do after hearing the news from Jack Lane?(5 marks)Answer:a) First and foremost stakeholders are parties that have an interest in the organization. This interest may cover formal or informal relationships in which they receive compensation from a contract or simply affected by the organization’s business.
The potential stakeholders of the Prairieland Bank include customers and