When it comes to the audit objectives, the public and the auditing profession maintain varying expectations. The public expects the prevention of fraud to be the auditor’s responsibility. However, the auditors believe that they are responsible for fraud detection, but not obliged to find all of it. In addition, the public views the fraud by the characteristics displayed by management and employees. For example, WoolEx Mills’ management wanted to exude a prevailing financial position and to uphold reputations. By committing financial statement fraud, it made the company look successful even though Sales and cash flows were decreasing. The public would view these particular characteristics as pressures to why the company committed fraud. Greed, recognition, and influences also impacted the public’s view of Wool Ex Mills’ fraud scheme. The CEO used authority to influence employees to take part in the fraud scheme. The public would see that the CEO utilized power to manipulate shareholders, which impacted their trust with WoolEx Mills (Cohen, Ding, Lesage, & Stolowy 2015) (Krishnan & Shah
...: 10 year imprisonment for mail wire and fraud, violators of financial statements not certified by a CEO and CFO face fines up to $5 million and imprisonment up to 20 years and tampering with documentation also carries a 20 year imprisonment sentence. Conclusion Making an unethical decision will not only bring repercussions to the auditor but also harm to the company the audit was done for. Due to the Sarbanes-Oxley Act resulted in added costs for audits and increased liability for unethical auditors, executives and Board members. The Sarbanes-Oxley also prevents foreign companies to do business in the United States and for those who choose to be non-compliant with Sarbanes-Oxley act the liability is steep. References: Tackett, J. (n.d.). Sarbanes-Oxley and audit failure A critical examination. Managerial Auditing Journal, Vol. 19 No.3, 2004. pp. 340-350. 1 2 3 4 5
statements may be the result of either a honest mistake or a lack of integrity
Auditors’ motivated blindness. It could be that this conflict of interest is the reason behind Arthur Anderson issuance of an unqualified audit report without questioning or recommending to the audit committee the treatment of the related party transactions (Tonge et al., 2003, p. 15), the appropriate disclosures to make or the reasonable assumptions of mark-to market accounting. Moreover, Andersen admitted it destroyed perhaps thousands of documents and electronic files related to the engagement, in accordance with “firm policy,” supposedly before the SEC issued a subpoena for them (Thomas, 2002).
Proverbs 10:9 states: “People with integrity walk safely, but those who follow crooked paths will slip and fall” (New Living Translation).” This Scripture suggests that individuals who do not walk in integrity follow “crooked paths.” They walk in ways that are not morally sound, pure, and honest—but in ways that are corrupt. Clients want accountants with integrity. Thus, integrity is critical to the public trust. As a matter of fact, one of the general definitions of integrity provided by the AICPA Code is that it is a quality from which the public trust derives. Also, it is an element of character fundamental to professional recognition, and it requires members to be (among other things) honest and candid within the constraints of confidentiality (Duska, Duska & Ragatz, 2011). 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
We as accountants have an ethical obligation under the AICPA Code that require us to place the public interest ahead of all other interest, including our own self-interest and that of our employer or client. We must be independent, make decisions objectively, exercise due care in the performance of professional services, and must act with integrity. The standards of the Institute of Management Accountants (IMA) are similar to the Professional Conduct in the AICPA Code. Furthermore, the principles of the AICPA Code include responsibilities, the public interest, integrity, objectivity and independence, due care, and scope and nature of service. The IMA provides guidance on issues relating to competence, confidentiality, integrity, and credibility. The Resolution of Ethical Conflict section in the IMA defines the steps to be taken by members, such as discussing matters of concern with the highest levels of the organization, including the audit committee when they are pressured to go along with financial statement improprieties. In addition, the IMA runs an ethics hotline service to provide support to its members to act ethically at all times.
The principles of the AICPA Code of Conduct should guide the work that Jose and Emily do as auditors. The principles that specifically apply to this situation are Responsibilities, The Public Interest, and Due Care. CPAs have the responsibility to “exercise sensitive professional and moral judgments in all activities.” (Mintz, p. 19)
99, Congress took steps in response to big fraud scandals and passed the Sarbanes-Oxley Act (SOX) in 2002 to restore public confidence in accounting profession. The intention of the new legislation is to “improve the audit effectiveness and the credibility of financial reporting” (Ernst & Young 2012). Generally, the Act focus on strengthening corporate governance, enhancing auditor independence and management accountability for financial disclosures and accuracy. Under Sarbanes-Oxley Act, auditors are prohibited to provide non-audit services for audited firms. In addition, Section 404 of the Act requires auditors to evaluate and issue an opinion regarding the effectiveness of the internal control over financial reporting of the audited firm. The act also requires auditors the audit committee, consisted of independent members, to engage and oversee the external auditors. The implementation of these rules has led to great improvements in audit
As an accounting and finance student, with an ambition to qualify as a chartered accountant in the future, I feel it is appropriate for me to analyse the ethical issues faced by the Accounting Profession. The Accounting Profession is one which has come under a lot of scrutiny in recent years, as scandals such as Enron and Anglo emerged. A series of unethical decisions led to the closure of one of the ‘big five’ accounting firms when the Enron scandal came to light. In Ireland today Ernst and Young are facing a court appearance in relation to their involvement as auditors of Anglo Irish Bank, needless to say they also made some unethical decisions while working with the bank. In this literature review I endeavour to assess the code of ethics held by accountants and provide examples of when accountants have not adhered to this code of ethics.
Auditing has become quite a challenge in recent years due to all the fraud scandals that has been going on. Such is the case that government was required to intervene and created the Sarbanes-Oxley Act; one of most significant reforms related to public companies since 1934. Modern corporations aren’t ran by their sole proprietors anymore but by managers whose job is to protect their interest. Particularly this is one of the reasons why the demand of auditing arose due to the natural conflict of interest between the owner and the manager. Both of these individuals will naturally look out for their best interest and will forget about the other. The owner wishes to see his company grow while the manager wishes to grow his pockets; their interests
The three important characteristics or elements of trust, ability, benevolence and integrity, are an integral component of the AICPA Code of Professional Conduct. These elements emphasize the importance of the code in relation to maintaining and enhancing public trust in the services rendered by the accounting profession. In other word, as CPAs possess high levels of the three characteristics of trust, and use them when applying professional judgement to resolve accounting ethics dilemmas, the public trust is enhanced (PointCast Presentation, n. d.).
The American Association of Public Accountants first implemented ethical rules in 1905. Since then, accounting ethics has been heavily scrutinized. It has been said "that the relationship between personal values, codes of conduct and decisions to engage in financial misrepresentation are 'weak at best'" (Douglas, Davidson, & Schwartz, 2001), p. 101). It is essential for Accountants to make ethical decisions. In order to promote ethical decision making, it is vital that profession develop a strong ethical environment. The purpose of this paper is to look at two of the main ethical theories as they relate to the accounting profession. Specifically this paper will give a detailed description of utilitarianism and deontology. The organizational culture and the American Institute of Certified Public Accountants code of professional conduct will then be looked at from the context of the two ethical theories. Finally, I will present the ethics system I believe is most appropriate for the accounting profession.
With a desire to make their company appear better than it actually is, there has been a constant issue of corruption and fraud in accounting. Individuals who practice in fraudulent activities often seek to enrich themselves, establish a financial presence, or even gain respect from others. Not only do these scandals cause the companies to fall into bankruptcy, but also leads to innocent people losing their entire life savings. Over the past decade, numerous frauds have been discovered worldwide. Some of those frauds include Enron, WorldCom, Cendant, Adelphia, Parmalat, Royal Ahold, Vivendi, and SK Global. In most cases, the auditors were alleged to be the cause since it’s their responsibility to detect the fraud. Thus they were sued by stockholders for performing negligent audits.