Solved: I do like to if this look fine and missing anything? Ethical Issues in Accounting

I do like to if this look fine and missing anything?

Ethical Issues in Accounting

Ethics is a substance that is comprehensive to all aspects of human life cover. The increasing social and social relationships become more difficult, creates new needs are the appearance of many professions and accounting is one of them. Accounting is the language of business and an auditor’s profession is to assure the language is used correctly. The article, “Ethics in Auditing: the Auditing function” by Ronald Duska & Brenda Duska illustrated that auditors must avoid the perception of conflict of interest. I agree with Ronald Duska & Brenda Duska because as long as an auditor is honest, even if there are conflicts of interest and never should take a decision on unjustified guidance. Also, there are several steps that Ronald and Brenda provide to demonstrate how an auditor can adequate his/her jobs.

The function and responsibility have come from Justice Burger in 1984. The Corporate financial statement is very important information to guide the decisions of the capitalizing public. There is numerous requirement of federal Securities and Exchange Commission. Commission guidelines require that the financial reports must be audited by an independent CPA in agreement with generally accepted auditing standards. The independent auditor should define the financial reports of the corporation have been prepared according to the GAAP. Then the auditor decides if the financial statement of the corporation have fairly presented the financial position and operations of the corporation for the significant period.

Auditing becomes a useless function without the public trusts the auditor’s confirmation to the fairness of the financial statement. If the public has any doubt that an auditor is not fully independent of the client, trust can be eroded. For example, the Duska apply Immanuel Kant’s universalizability principle to accountants who lie. According to the principle, if an action yields unfavorable consequence as the result of being universally adopted by everyone, such as action should not be undertaken by anyone. Duska analysis, if everyone misrepresents their company, these two things can be done. First, in a business trust play a big role. Chaos would ensue because the financial market cannot run without trust. He said, “Cooperation is essential, and trust is a precondition of cooperation” that means in order to work together, trust is very important. A company deals with many transactions each day and that requires to trust people with the company’s money. Therefore, if everyone or the universal misrepresent their company or financial statement then it would be impossible to work together or run a business.

Secondly, universalizing misrepresentation is causing the mistrust, chaos, and inefficiencies in the market. When everyone knows people are misrepresenting that it becomes impossible to misrepresent because once we know that people are not reliable or trustworthy than we don’t believe in their words. The author said, “This makes the universalizing of lying irrational or self-contradictory.” According to Kant, it will contradiction and irrationality lies. He believes liars are double standard like they will lie and they want people to believe their lies.

In addition, the auditor has much responsibility to the public which consequent duty to attest to the fairness of the financial statement. Justice Burger said, “The auditor does not have the same relationship to his client that a private attorney who has a role as a confidential advisor and advocate, a loyal representative whose duty it is to present the client’s case in the most favorable possible light. An independent CPA performs a different role. By the certifying the public reports that collectively depict a corporation’s financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client.” The author is illustrating that the auditors must have complete fidelity to the public, which means auditors must do their job with faithfully because auditors are owned by the public.

Another, the cause of the fact that taking action to avoid any activity that can interpret by others as a possible conflict of interest. Auditors are facing the conflicts of loyalties because the question as raise that, whom they are more responsible to the public or the client who pay them. Justice Burger called the auditor, “a public watchdog function” meaning auditors are in charge of public obligation. However, the auditors are getting paid from the clients for the services and that is why the auditors are more focusing to the third party or the clients. For example, Elaine Waples and Michael K. Shaub illustrate that an auditor in Canada who resigns because of conflicts between government policy goals and the interests of the public. Although, this case is an example of an external auditor and external auditors do not deal with clients but an independent auditor can learn from this example that they always should be loyal to the public.

Moreover, there is ten basic responsibility that the auditors have and few of them are really important. For example, independence in fact and in appearance meaning an auditor must have integrity, a character of intellectual honesty and the auditors shouldn’t have any obligations or interests in the client or its management. Otherwise, people will believe the auditors are biased with respect to the client and it’s really important that the auditor sustains the independence and appearance. If there’s no independent in appearance than the value of auditors function will get lost from the public. Another example of basic responsibility of the auditor, sufficient inspection, observation, and inquiries to afford a “reasonable basis” for an opinion. This responsibility indicate, the auditors need to review the statement adequately and give a truthful, realistic and rational judgment.

Furthermore, Independence has four basic concepts which are threats, safeguards, independence risk, and significance of threats or effectiveness of safeguards. Independence have four principles. For example, assessing the level of independence risk meaning independence decision makers should asses

Second, determining the acceptability of the levels of the independence risk

Third, considering benefits and costs

Fourth, considering interested parties views in addressing auditor independence issues.

Additionally, in the 1960s a board of the AICPA had raised the question about “present fairly” and the Cohen report pointed that “fairness” means the accuracy of solid facts. The Cohan report found Burger’s condition are inflexible for few reasons. Judge Henry J. said, present fairly was a distinct idea from GAAP and the last did not essentially affect in the previous. However, the fairness appears to demand the true picture should present as promising to the third parties that have a marketplace interest in the financial statement. Besides, the fairness, the Cohan report defined a view on internal accounting control. In Cohan opinion, the auditors are in charge to find if the internal auditing system and controls are sufficient. The auditor has a duty to inspect the internal workings of the company’s accounting actions and the protections from dangers that are in place. Basically, the auditor is liable for assessing whether the management accountants are active to their duties and if the internal auditing controls are sufficient and observed.

Although, in the article, Establishing an ethic of Accounting mentioned, “ Historically, the American accounting profession has not used a consequentialist approach for evaluating the public interest, choosing instead to adhere to a consistent standard of fairness to serve the public good.” This shows that, American accounting profession are not reliable for the public interest and they are reliable for the fairness in average that assist public moral.

Also, it says the ethical obligation of the accounting profession to its master, the public interest which can be fulfilled through maintaining fairness in the performance of professional duties and creating the financial statements presented to the public.

Another major responsibility is to find fraud and report errors. The Cohan mentioned the auditor is responsible to report any kind of deception in the financial statement or distinguishing of any mistake. For example, lawyers for the Allegheny health system’s creditors have sued Allegheny’s longtime auditors, Pricewaterhouse-Coopers, declare that the accounting firm “ignored the sure signs”. The suit called Pricewaterhouse-Coopers, “the one independent entity that was in a position to detect and expose” Allegheny’s “financial manipulations.” However, the auditor of the firm, “Consistently depicted a business conglomerate in sound financial condition,” even after the senior officials were fired. Steven Silber who spoke behalf of Pricewaterhouse-Coopers, believe that the claim is completely deprived of worth and they were aiming to protect themselves with confidence because they were innocent. Basically, to report the mistakes and indiscretions appears to be one of the most thoughtful and confusing responsibilities for an auditor.

In conclusion, Ethics is the discipline that somehow benefits approach, the proper of accounting professional guidance and practical explanation to determine the boundaries responsibilities. The basic purpose of the standards of being behavior, it is the responsibility ethical towards society. In order to keep our ethics in the accounting firm or accounting profession, we must have the fair judgment on the financial statement even after facing the issue like loyalty, self-interest, and pressure from the clients who pay them. Also, we talked about how the auditor can protect the principle of accounting and work for the public interest.