Whistle-blowing in Auditing

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Recommended: Ethical standards and values in business

Question 1

Introduction
At the start of this century, unprecedented collapses of Enron and WorldCom have sparked heated world discussions over corporate whistle-blowing. In light of this, legislations and professional codes of conduct are implemented to provide framework on ethical and financial decision-making particularly for auditors. This essay covers prerequisites for an effective corporate whistle-blower hotline, measures to avoid potential pitfalls, as well as analysis on benefits and drawbacks of having a whistle-blower hotline.

Whistle-blower Hotline
What is it?
By incorporating the concepts of whistle-blower of Alford (2001, p.17) and Bok (1980, p.277) into auditing, whistle-blower hotline is a communication system which allows individuals to sound an alarm within the framework of the organization, aiming to spotlight suspected accounting frauds, mismanagement or internal control failures which threaten public interests with convincing evidences.

Why is it necessary?
Whistle-blower hotline helps alleviate the impact of fraudulent acts before it is too late. When Cynthia Cooper revealed US$3.8 billion of fraud in internal audit, WorldCom declared bankrupt with US$45.98 billion of liabilities, 20,000 employees became jobless and investors lost over US$180 billion. (Soltani 2007, p.560) If there had been a hotline, outcome would have been less devastating to stakeholders.
It also provides a platform for employees to voice out. Newcomers worry that seniors will neglect their opinions due to lack of experience. Ethical dilemma is “a situation where a decision must be made about appropriate behaviour”. (Michael 2011, p.131) Employees facing ethical dilemma fear to risk their career for truth. Hence, a hotline prov...

... middle of paper ...

...ipley, A. (Monday 30th December 2002) Cynthia Cooper: The Night Detective. [Online] Time Magazine. Available from: http://content.time.com/time/subscriber/article/0,33009,1003990-1,00.html [Accessed 13th March 2014]

Maxwell, J. C. (2003) There’s No Such Thing as “Business” Ethics. New York: Warner Business Books.
Cheffers, M., Whalen, D. and Usvyatsky, O. (2013) 2012 Financial Restatements: A Twelve-Year Comparison.
Usvyatsky, O. (2013) Restatements: Where They Come From. [Online] Audit Analytics. Available from: http://www.auditanalytics.com/blog/restatements-where-they-come-from/ [Accessed 18th March]
Securities Exchange Act of 1934
Maleske, M. (2012) 8 ways SOX changed corporate governance. [Online] Inside Counsel. Available from: http://www.insidecounsel.com/2012/01/01/8-ways-sox-changed-corporate-governance?page=3 [Accessed 18th March 2014]

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