What exactly is accountant independence? I have determined that accountant independence is very similar to being an independent auditor. When it comes to auditor independence, it refers to the independence of the internal auditor or the external auditor from parties that may have a financial interest in the business being audited. The initial concept of auditor independence was developed in the 19th century, which primarily originated with the British. In that era, British investors didn’t allow auditors to work in the businesses that they audited. The initial concept began to change in the early 20th century due to the shift in capital from foreign to domestic sources in the railroad, mining industries and the inventions of the telegraph and telephone. As time passed to the 1970’s, FASB was established as the authoritative independent accounting standards setter. In the second half of the 20th century there were ongoing debates about accountant independence. Thomas A. Lee, in Company Auditing, 3rd ed. (Van Nostrand Reinhold, 1986, page 89), said, “An honest auditor will behave like someone who is independent, using independence to mean an attitude of mind which does not allow the viewpoints and conclusions of its possessor to become reliant on or subordinate to the influence and pressures of conflicting interests.” This statement was very admirable but didn’t include the auditor’s state of mind as they audited. On the other hand, P. Moizier, in “Independence” (in Current Issues in Auditing, Publishing Ltd., 1991), argued for an economic rationale for auditor independence. He said “There is an expectation that the auditor will have performed an audit that will have reduced the chances of a successful negligence lawsuit to a level ...
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... used fraudulent accounting methods to hide the declining earnings in order to make the illusion that they were growing financially. They were underreporting line costs by capitalizing the cost on the balance sheet rather than properly expensing them, and inflating revenues with bogus accounting entries from “corporate unallocated revenue accounts.” Exodus 23:1 says, “Do not spread false reports. Do not help a wicked man by being a malicious witness.” These people obviously did not abide by the Bible and what it says. They were trying to take the easy way out and once again it backfired.
In 2002, President George Bush signed the Sarbanes-Oxley Act into law. This legislation was created in response to the high profile Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practice in the enterprise.
By deliberately falsification of their financial statements, by Martin Grass, Brown and Bergonzi. Among other things like:
Consult PCAOB Ethics and Independence Rule 3520. What is the auditor independence, and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact?
The CFO, Andrew Fastow, systematically falsified there earnings by moving company losses off book and only reporting earnings, which led to Enron’s bankruptcy. Any safeguards or mechanisms that were in place to catch unethical behavior were thrown out the window when the corporate culture became a situation where every person was looking out for their own best interests. There were a select few employees that tried to get in front of the unethical accounting practices, but they were pushed aside and silenced. The corporate culture at Enron became a place where if an employee would not make unethical decisions then they would be terminated and the next person that would make those unethical decisions would replace them. Enron executives had no conscience or they would have cared for the people they ended up hurting. At one time, Enron probably was a growing company that had potential to make a difference, but because their lack of social responsibility and their excessive greed the company became known for the negative affects it had on society rather than the potential positive ones it could have had. Enron’s coercive power created fear amongst the employees, which created a corporate culture that drove everyone to make unethical decisions and eventually led to the downfall and bankruptcy of
CEO Jeffery Skilling and Kenneth Lay, the CEO prior to Skilling, were taken to trial. They were both found guilty of committing multiple types of financial crimes, and sentenced to 24 years in prison. CFO Andrew Fastow was also taken to trial and was found guilty and sentenced to 10 years in federal prison. The collapse of such a large corporation led to changes in financial controls. U.S. Congress passed the Sarbanes-Oxley Act in 2002. The SOX Act protects investors from deceitful accounting actions by companies (4). The Financial Accounting Standards Board increased its ethical behavior. FASB is responsible for generally accepted accounting principles, which provides standards for financial statements of publicly traded companies. These changes brought to life after the Enron scandal have decreased fraud and increased investor confidence. Although the acts that Enron committed were immoral and destroyed thousands of lives, it has lead an increase of controls and compliance, preventing something like this from happening in the
The AICPA Code of Professional Conduct defines independence as consisting of independence of mind and independence in appearance. According to the AICPA Code of Conduct, Section 55 Article IV, An accountant member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. Moreover, a member who practices their accounting work in a public firm should be independent in fact and appearance when providing auditing and other attestation services (aicpa.org). According to the case study What Lies Beneath, I think that Betty did not show her professional skepticism since she built trust on her client, which she could not have as an auditor. As an auditor,
Rather than being sticklers for following GAAP accounting principles and internal controls, this company took unethical behavior to a whole new level. They lied when the truth would have been easier to tell. It is almost as if they had no comprehension that the meaning of the word ethics is “the principles of conduct governing an individual or a group (professional ethics); the discipline dealing with what is good and bad and with moral duty and obligation”, (Mirriam-Webster, 2011). To be ethical all one has to do is follow laws, rules, regulations and your own internal moral compass, all things this company seemed to know nothing about.
The ethical dilemma in this case is one that Daniel Potter is faced with. Daniel is a staff
Integrity in the accounting profession involves adhering to the rules and principles of the profession. This includes remaining free of conflicts of interest and maintaining client relationships in which the accountant can remain objective in discharging his or her responsibilities. This requires independence in fact and in appearance as mandated under section 1.200.001.01, Independence Rule the AICPA Code. In other words, no one should be able to view the accountant as being biased with respect to a client’s financial reporting due to an improper client relationship. Lack of integrity in accounting practices has been, and continues to be, a key element in the downfall of many institutions which has hurt the public trust in the accounting
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
Dowd (2016) runs above and beyond with the clarification to state accounting fraud incorporates the change of accounting records in regards to sales, incomes, costs and different components for a profit motive, for example, boosting organization stock prices, getting ideal financing or maintaining a strategic distance from obligation commitments. Dowd is of the feeling that covetousness, absence of straightforwardness, poor administration data and poor accounting interior controls are a couple of explanations behind accounting fraud. (Dowd,
4) . One of the largest bankruptcies in history was enabled by accountants hiding debt and destroying the evidence to avoid implication (Buckstein, part 2 pgs. 1, 2, and 3). These unfortunate events led to the need for increased scrutiny and regulations, including the Sarbanes-Oxley Act (Buckstein, part 3 pg 1). This legislation inspired the creation of the Canadian Public Accountability Board (CPAB) (Buckstein, part 3 pg 1). These changes have led to an increased awareness of the need for auditor independence as well as higher standards for accounting and business in general (Buckstein, part 3 pg 1). While these measures have helped to reassure the public, there is still the question of why Accountancy is not a protected
They were committing fraud by creative accounting, acting illegally when using insider trading and shredding their documents relevant to the investigation. Next, consider the stakeholders. Anyone who owns stock in the company would suffer, along with every employee. Under the values bullet we can assume that they have none. Greed and power got the better of every one of them.
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
The Auditor-Firm Conflict of Interests: Its Implications for Independence: A Reply. By: Goldman, Arieh; Barlev, Benzion. Accounting Review, Oct75, Vol. 50 Issue 4, p857-859, 3p
A CA (Chartered Accountant) is a professional accountant who has earned the CA title through training and practical experience obtained from the CICA (Canadian Institute of Chartered Accountants). The institute, which has over 66,000 members, conducts research into current business issues and sets accounting and auditing standards for all types of businesses. A CA is a complete professional in the field of Accountancy - informed in the subjects of Accountancy, Auditing, Business Management, Information Technology, Taxation, Corporate and Commercial Law, Financial Management, Economics and other linked subjects.