Taken from Case 1-7 Eating Time

question 59

Essay

Taken from Case 1-7 Eating Time.
Kevin Lowe is depressed. He has been with the CPA firm Stooges LLP for only three months. Yet the partners in charge of the firm-Bo Chambers and his brother, Moe-have asked for a "sit-down." Here's how it goes:
"Kevin, we asked to see you because your time reports indicate that it takes you 50 percent longer to complete audit work than your predecessor," Moe said.
"Well, I am new and still learning on the job," replied Lowe.
"That's true," Bo responded, "but you have to appreciate that we have fixed budgets for these audits. Every hour over the budgeted time costs us money. While we can handle it in the short run, we will have to bill the clients whose audit you work on a larger fee in the future. We don't want to lose clients as a result."
"Are you asking me to cut down on the work I do?" Lowe asked.
"We would never compromise the quality of our audit work," Moe said. "We're trying to figure out why it takes you so much longer than other staff members."
At this point, Lowe started to perspire. He wiped his forehead, took a glass of water, and asked, "Would it be better if I took some of the work home at night and on weekends, completed it, but didn't charge the firm or the client for my time?"
Bo and Moe were surprised by Kevin's openness. On one hand, they valued that trait in their employees. On the other hand, they couldn't answer with a yes. Moe looked at Bo, and then turned to Kevin and said, "It's up to you to decide how to increase your productivity on audits. As you know, this is an important element of performance evaluation."
Kevin cringed. Was the handwriting on the wall in terms of his future with the firm?
"I understand what you're saying," Kevin said. "I will do better in the future-I promise."
"Good," responded Bo and Moe. "Let's meet 30 days from now and we'll discuss your progress on the matters we've discussed today and your future with the firm."
In an effort to deal with the problem, Kevin contacts Joyce, a friend and fellow employee, and asks if she has faced similar problems. Joyce answers "yes" and goes on to explain she handles it by "ghost-ticking." Kevin asks her to explain.
"Ghost-ticking is when we document audit procedures that have not been completed." Kevin, dumbfounded, wonders, what kind of a firm am I working for?
After much consideration Kevin asks for a meeting with Bo and Moe within week. Kevin does not want to take work home and off the clock. He wants the meeting to convince Bo and Moe that having auditors work off the clock and at home is not in the best interest of the firm and its mission to do independent audits with integrity, objectivity, and due professional care.
Required:
Analyze the case using GVV.
What are the main arguments Kevin is trying to counter? What are the reasons and rationalizations Kevin needs to address?
What is at stake for the key parties?
What levers can Kevin can use to influence Bo and Moe?
What is the most powerful and persuasive response to the reasons and rationalizations Kevin needs to address? To whom and when?

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Definitions:

Absorption Costing

An inventory pricing approach that incorporates all costs associated with manufacturing, including both variable and fixed expenses, into the product's cost.

Variable Costing

An accounting method that includes only variable production costs in the cost of goods sold and treats fixed overhead expenses as period costs.

Direct Materials

Raw materials directly used in the manufacturing of a product that can be directly traced to that product.

Variable Overhead

Variable overhead refers to the indirect costs of production that fluctuate with the level of output, such as utilities and materials.