1. Assume you are the practice director for the accounting firm and Charles Hutton has just provided you with the facts as described in this case. Would you recommend to Hutton that the firm go along with its client’s proposed accounting change for rental contracts? Be sure to provide support for your answer.
2. What ethical concerns are raised by the position taken by STC that the accounting firm either agree to the company’s proposed change or the company would seek proposals from other CPA firms? Assume that the accounting firm refused to go along with its clients position and SYC was able to find an accounting firm that would support its position. Does this mean that Charles Hutton and the practice director of his firm were wrong in their interpretation of the revenue recognition rules as described in this case? Explain the reasons for your answer. 3. Why do you think Charles Hutton would inform the client that certain footnote disclosures would be required concerning the change in accounting principle? Under what circumstances would reference to the change be required in the auditor’s report?
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