Ethical Decision Making and Cases, Term Paper Example

Auditing refers to the process of updating and keeping in check a company’s transaction such that the status of the company may be known, in most cases. In other words, the auditor is always aware of the company’s financial status since he or she goes through all the book of account. From time immemorial, human error has been associated with many ills. With auditing, trust is one virtue that should be upheld by both parties to ensure that nothing unpredictable happens later after the completion of the auditing (Rainborn, 1982). The concept of auditor independence requires the editor to perform his own activities without disruptions from other people. The auditor should only trust himself alone with a company’s financial status. A code of ethics refers to a comprehensive statements as well as principles and values guiding the daily duties of the business. Auditors must have their independence powers to allow them do their jobs perfectly. Nonetheless, there are several cases where auditors have proved untrustworthy. In such cases, state law always comes into play punishing all wrong doers. This paper discusses cogently the issues of ethics in auditing firms or among auditors. It will utilize evidences from three companies depicting what auditing sometimes really is.

As stated in the introductory part, auditor independence issue is always seen as complex. Company financial reports are keys to the effective and efficient operation within the capital market. There are several advantages companies get when their accounts are audited by independent auditors. First, it acts a means of safeguarding. There are some basic principles governing auditor’s role in organizations.

As an accountant, there are six major principles of professional conduct. They include responsibility, integrity, the public interest, due care, objectivity and independence, scope and nature of the services. Responsibility entails all an auditor is supposed to be doing while working for the company as an auditor in the given slot. The auditors should not involve himself with any other activity outside his or her area of specification. The Coca Cola Company is one such company that has had issues relating to lack of responsibility in their internal auditors. Responsibility of auditors is an important part in ensuring that everything that the auditor does is not influenced by anyone. Other two companies that have had the same fate are the Aple.inc and the Pepsi.

Integrity involves being genuine in all that one does. Integrity is purely against any attitude like cheating or giving out a wrong statement concerning the account (Pevits, 2011). In this case, integrity is termed as the fundamental virtue that an auditor should have. It is the backbone of all the operations done by the auditor. Without integrity, auditing job always proves challenging to many since they do not have the aspect of trustworthiness in themselves. In such, it is always a hard task working with such individuals who might always be self-centered in every step they step while working with companies. There six distinct steps necessary to conduct a required audit in an ethically accepted manner. They are starting with detailed foundations, developing metrics, creation of cross-functional team, efficiency in auditing, looking for other issues and laying a proper groundwork for the operation. Before conducting any form of auditing, it is crucial that the auditor comprehends well what he or she is intending to do before going ahead to handle everything. Foundation enables him or her to know what exactly he or she will require once starts the job. Integrity issues has also been the case of a Chinese based Construction, the China Railway Group Limited. The company auditor failed to the right job on the right account. He understated the company’s annual profits, which was later realized by the government hired. The other company that faced this was the Honda; a Japan based Motor Vehicle Company.

With the public interest, all auditors and other members should be ready to accept all the obligations and act in a way that will ensure that the public interest is served well; the public trust is honored, as well as demonstrates the necessary professionalism commitment. One of the companies that been subjected to auditing companies is Zanella Motor Cycles company situated in Argentina. The company has faced some serious auditing problems since its formation. First, the company was faced with the problem of external auditing. There were problems with wastages and losses. There were poor maintenance of books and records and statutory registers. Research conducted afterwards showed that the auditor lacked the basic principles of sincerity, honesty, and lack of biasedness. New York City has been one of the towns and states that have companies that have faced several issues due to lack of proper editing. Blackstore Group is a financial service company in New York. The company, since its formation, has had a series of issues caused by the internal auditor. The auditor, who had been working in the company for more than a decade, failed in several instances before he was fired. The main problem that the company faced was on the issue of engagement letter. Letter of engagement between the client and the auditor. In many rare conditions, there are situations in which a letter of engagement between the client and the auditor. The other company that has also been subjected to issues related to dishonesty is the Mercedes Benz company based in the German capital, Berlin.  Notably, the importance of the engagement letter can never be overemphasized. First, it complies with ISA 210 thus agreeing with the terms of audit engagement but also in ensuring that there is comprehension as to the roles of the auditor as well as management responsibilities.

Furthermore, the company also suffered the issue of revenue recognition evidence. Some reviewers in the company asserted that some of the audit evidences relating to revenue recognition in many cases were quite weak and could not add up to substantive completeness will testing(Ferrell, Fraedrich,  & Ferrell, 2008 ). This led to the creation of a rift between the government and the company with the main source of rift being the auditing company. Calvin Klein is another big company in the US specializing in design alone. The company, which is considered old, has seen several instances where it has suffered many problems related to auditing issues. Calvin Klein, as a big company has both internal and external auditor. For good cooperation and understanding, the company and the internal auditor should provide the external auditor with relevant information to help him or her in conducting the auditing job. It is important to note that some of the external auditors are government auditors instructed to check on the progress of the company and to ensure that the company pays taxes based on its worth in terms of monthly or  specified durational profits. In 1998, Calvin Klein had issues with both state and federal governments over the issues of taxes and transparency (Rawindara, 2008). According to a journal published in the same year, the company’s internal auditor failed to reveal to government auditors the books of account that would enable them perform the necessary analysis to come up with a conclusion on the level of transparency of the company.

Auditors are also expected to respect the confidentiality of information they are given by companies to conduct the analyses of the company’s books of accounts. The Angel Food Ministries was considered one of the biggest food companies in the US specializing in fast foods and several other foodstuffs. The founder of the company, Joe Wingo, his wife Linda and son Andy Wingo were arrested following the issue they had with the government. The company has never been tax compliant for several years due to inappropriate auditory procedures. For instance, in one financial year, the company could make up to $300 million and paid very little to the government in terms of tax. The money, which the company paid to the government, was way below the threshold percentage as stipulated in the constitution. The Florida Engineered Construction Products Corporation (FECP) is also a company that has had several issues to do with auditing problems. The owner of the company was sentenced to several years of prison after failing to reveal the outcome of the internal auditing that would enable the government auditor to carry out auditing procedure that would ensure that the government imposes taxations on the company in accordance to the tax laws (Rawindara, 2008). The third company that has faced the same fate due to the same mistake is Nike Company, which majors in producing sport wears.

Documentation of the audit procedures is also crucial for submitting to the federal government for them to evaluate on how the audit process was conducted. Revelation of audited accounts and books is crucial as it allows the government auditor to comprehend fully the company’s books of accounts and come up with the best ways in which to provide certain services such as security to it. In addition, the government auditor is also able to propose after calculation the amount of tax that the company will be paying to the state and federal government. It will also enable the auditor to ensure that certain issues such as double taxation do not occur. The Florida Wholesale distribution company is among the several companies that have been accused by external auditors of failing to provide or keep enough documentation for easy analyses by the government. Documentation contains all the activities that the company has been involved in. It outlines all the procedural business facts and steps of a company in a given financial year. The Florida based Distribution Company failed to keep the appropriate documentation for reference by the government auditors. Due to this, comprehension of the facts regarding auditing of the company’s books of accounts becomes really difficult. In such a case, the government, through its finance department, obviously assumes fraud of the company and may decide to impose large fines on the company or file a case against the CEO. This is what happened also to the World Health Alternatives CEO who was sentenced to 13 months imprisonment due to financial fraud in the company and failing to comply with the set rules and standards governing the taxation process. The fraud was in the form of false statements to SEC. other companies that have suffered the same fate include Puma a club in UK known as the Blackpool. The cub has had series of issues emanating lack of proper documentation processes (Rawindara, 2008).

A good auditor must ensure that the accounting policies are maintained. The policies should be in accordance to the AICPA rules and regulations governing accounting procedures. The financial information should be in accordance to the statutory policies. The auditor has the roles of ensuring that he or she does all the jobs assigned to him or her. The Michigan gas station (MI Petro Company) owner is one of the companies that have suffered a bad fate of failing to keep well the books of account.

From the above elaborations, it is succinct that companies should comply with all the rules and regulations regarding auditing in order to operate well. it is important for the auditing procedures to be in accordance to the company rules and regulations and should not violate the government laws.

References

Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2008). Business ethics: Ethical decision making and cases. Boston: Houghton Mifflin Co.

Previts, G. J. (2008). Research in accounting regulation: Vol. 20. Amsterdam: Elsevier JAI.

Raiborn, D. D. (1982). Audit problems encountered in small business engagements. New York, N.Y. (1211 Ave. of the Americas, New York 10036-8775: American Institute of Certified Public Accountants.

Rawindara, K., & Sharma, V. (2011). Auditing: Principles and prctice.