Response to the following problem:
Sunrise Bank recently appointed the accounting firm of Smith, Godfroy, and Hannaford as the bank's auditor. Sunrise quickly became one of Smith, Godfroy, and Hannaford's largest clients. Subject to banking regulations, Sunrise must provide for any expected losses on notes receivable that Sunrise may not collect in full. During the course of the audit, Smith, Godfroy, and Hannaford determined that three large notes receivable of Sunrise seem questionable. The auditors discussed these loans with Susan Carter, controller of Sunrise. Carter assured the auditors that these notes were good and that the makers of the notes will be able to pay their notes after the economy improves. Smith, Godfroy, and Hannaford stated that Sunrise must record a loss for a portion of these notes receivable to account for the likelihood that Sunrise may never collect their full amount. Carter objected and threatened to dismiss the auditors if they demanded that the bank record the loss. Smith, Godfroy, and Hannaford wants to keep Sunrise as a client. In fact, the firm was counting on the revenue from the Sunrise audit to finance an expansion.