Domino Ethics Assignment
Not only do investment banks facilitate mergers and financially advise corporations about issuing new securities, but some also have a division of securities research, which communicates with investors about the value and risk in buying securities. The research analyst should have objective information independent from the interests of the investment banking personnel, or else conflict of interest can arise. This is when the personnel sees an opportunity to further their business by influencing the financial decisions of the involved parties, so it pressures or compromises with the research analysts to post favorable research and evaluations to induce investors in making decisions in favor of the investment banking personnel’s interests. There are many regulations put in place to maintain this separation, such as the Global Research Analyst Settlement and SRO Rules. It was settled in this agreement that budget allocation for the research department was to be independent of investment banking and firms were required to separate information between the investment banking and research departments, as well as separate the departments physically, in efforts to separate research and evaluation from the pressures of investment banking personnel and to protect investors from being misled (Pinedo, Evans & Rosenberg 2013).
In one relevant case, RBC provoked Rural/Metro Corp. to self itself for less by telling it that its shares are worth $8 to $16, because Warburg Pincus LLC was selling it for $17, when actually the shares were worth $19 (Hoffman 2014). This looked like a great deal in which Warburg benefited and received something more valuable than the actual price they paid, and Rural/Metro lost out on money beca...
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...mpany they are auditing so the financial statements are accurate and do not influence people’s decisions to invest in the company favorable to the personnel’s interests. Financial statements are to be unbiased and objective- accountants are not to overstate revenues or the value of assets, or understate liabilities. Accountants are to keep information obtained from working for one client separate from the information it attains from working with another client, and they are not to act for a current client against a former client. Accounting firms should not provide non-audit consulting to audit clients because auditors can be hesitant about criticizing the financial advice given by the non-auditors in the firm. Separation of information between auditing and consulting services is important to avoiding conflicts of interests and keeping auditors’ judgments objective.
The audit committee must certify that the company’s auditors are independent. The audit committee must approve all professional services provided to the company by its independent auditors and ensure that auditors do not provide to the company any of the specifically prohibited services identified by SOX, such as bookkeeping services. The audit committee must receive and analyze key items of information from the independent auditors. These items of information include auditors’ analysis of critical accounting policies adopted by the
According to PCAOB Ethics and Independence Rule 3520 a registered public accounting firm and its associated persons must be independent of the firm's audit client throughout the audit and professional engagement period. Independence is required for all audit engagements. The auditor must be independent of an entity when performing an engagement according to General Accepted Auditing Standards (GAAS). Independence is very significant to the audit profession, because the primary purpose of an audit is to provide financial statement users with reasonable assurance an on whether the financial statements are presented fairly. The auditor’s report gives credibility to an entity financial statement and without an auditor’s report the financial statement would be consider worthless. Reliance on management for the fair presentation of a financial statement would often result with a bias and impressive financial statements that doesn’t reflect a true picture of the entity’s financial position. An auditor’s independence should not in anyway be influenced by any relationship between their client and
... for the audit service, but it has earned even more for consulting and other activities. Accounting firm fought off attempts to limit or stop them from carrying out consultancy work for clients of the audit; they insist that there is no real conflict of interest.
An auditor should keep objectivity at all times. Maire Loughran, a Certified Public Accountant and University Professor, explains “objectivity means the ability to look at facts the client presents, and reviews them with no preconceived notions or prejudices” (52). In other words an auditor has to exercise his ability to review information in a no subjective manner, and perform auditing work free of conflicts of interest. Many instances have occurred when objectivity was not present while performing audits, for instance the case of Bernard Madoff’s auditor, David G. Friehling, from the firm of Friehling & Horowitz, illustrates it well. On 2009, William K. Rashbaum and Diana B. Henriques, both reporters at The New York Times, inform in the online version of their newspaper:
First it ensures independence of external auditors. Many believe that providing non-auditing services for audited clients may make auditors reluctant to question too much about their clients when they should have. The prohibition of many non-audit services makes auditors focus on their core business, auditing. It also helps auditors to be independent and objective. The second way is that it enhances the quality of the audit. Through the effective oversight, audit committee can objectively evaluate auditors’ performance and contribute to the reliability of financial reporting. Finally, the Act helps to increase the reliability of the financial information. When auditors evaluate the firm’s internal control system, they will gain a better understating regarding the strengths and weaknesses regarding the client’s financial reporting system. Auditing the effective internal control system will not only help to reduce the scope of audit work but also ensures that the financial statements are
Auditing is used to enhance the degree of confidence that users of financial statements have in those statements. This is achieved through gathering sufficient evidence to come to a conclusion on whether the financial statements are prepared “in all material respects, in accordance with the applicable financial reporting framework”. (IFAC, 2013). This usually refers to how true and fair the statements are when looking at the financial position of the company at the end of the period.
Auditors have an ethical responsibility to ensure that the financial statements are presented fairly. Auditors are also responsible for “detecting material fraud and reporting it to the board of directors.” (Mintz, p. 152) An assessment of business risk will help auditors to determine if there is confidence that they can trust management to provide the information to adequately complete the audit. If there is too much business risk, there is a good change that the auditor may not be able to meet their ethical obligations.
Even though before this time period a company’s auditors were required to maintain an independent view since they were suppose to act as a protector to all end users it was not always the case. An environment was created with a Utilitarian approach that said company’s can offer package services that offer consulting services why at the same time audit the company’s financial statements. But when issue arose it became difficult to jeopardize the superior revenue that was obtained through consulting
Kent has a misconception that auditors have no specific duties regarding fraud. Furthermore, Kent also mentions that auditor provides no assurances about fraud because that is management’s job. In fact, auditors do not have duty to detect fraud. However, it is an auditor responsibility to detect material misstatements in the financial statement. Auditors are required to identify and assess the risk of material misstatement due to fraud and design procedures to detect such misstatement.
Audit is a process to evaluate and review the accounts and financial statement objectively. We can divide it into internal auditors and external auditors. Internal auditors have a inner knowledge of business process. Auditor has access to the much confidential information and all levels of management. But they may lose their judgement and they are not acceptable by the shareholder. “The overall objective of the external auditors is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements in acco...
Accounting ethics has been difficult to control as accountants and auditors must keep in mind the interest of the public while that they remain employed by the company they are auditing. The accountants should take into account how to best apply accounting standards when company faces issues related financial loss. The role of accountant is crucial to society. They serve as financial reporters to owe their primary constraint to public interest. The information provided is critical in aiding managers, investors and others in making crucial economic decisions. An accountant is responsible for any fraudulent financial reporting. Some examples of fraudulent reporting are:
Are Auditors Becoming Too Cozy With Their Clients? By: Briloff, Abraham J.. Business & Society Review (00453609), Summer85, Issue 54
...e financial reports and statements are correct. This auditing will be conducted by auditing department of the organization, even may be done by an independent auditor who is not part of the organization, and sometimes public officials are elected. In case of unmatched consequences the organization need to give explanation on the misrepresentation of wrong statements. Auditors purpose is then to ensure that the misrepresentations are corrected, then maintain accurate, reliable financial documents and statements.
The major characters of the tradition audit are all information what is needed by auditors are on the paper and the manual calculators and without high communication technology. Auditors usually were limited by the place in the paper time. When a several people are working on the same auditing project for a client with offices in cities across the country, even worldwide, it takes a lots all time those auditors get the information which they need from the client, even there is risk paper information disappear for many reasons. on the another hand, mail paper information increase the auditing cost. The mistake caused by the manual calculators inevitably, no matter how fixed auditors concentrate on recalculate is, after all auditors are human. The global business become major in the modern business world, some example, several auditors who are in different locations are working a same auditing project, or auditors are in different city even country with the client, when there is issue among these auditors or between auditors and client, they only can communicate with each other by phone or be together and have meeting. Phone call can not make sure information been watched in the same time when the voice is talking about the issue, but having a meeting takes time and money make all people together, it increases auditing cost.
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.