Exposure of the Accounting Profession to Increasing Liability

However, the author argues that these audits have become increasingly ineffective. Identify and discuss at least three reasons why these audits are becoming less effective.

Describe at least two (2) career options someone with an accounting education can pursue. Be sure to reference sources such as the Bureau of Labor Statistics and the American Institute of Certified Public Accountants.

Frequent changes of audit firms, whether resulting from mandatory rotation or otherwise, introduce threats to independence and operational difficulties that make audit failure more likely. Many studies have involved practitioners ' opinions on this issue, which have been

Businesses, investors, creditors rely on accounting ethics. The accounting profession requires honesty, consistency with industry standards, and compliance with laws and regulations. The ethics increase the responsibility and integrity of accounting professionals, and public trust. The ethical requirements influence the management behavior and decision-making. The financial scandal of Enron and Arthur Anderson demonstrates the failure of fundamental ethical framework, such as off-balance sheet transactions, misrepresentation of financial statements, inaccurate disclosure, manipulations with earnings, etc. The confronted accounting profession and concern for ethics in businesses forced regulators to revise the conceptual framework of accounting processes.

Under the Security Act of 1933 and 1944, any individual that willfully filed untrue statements should be penalized. Auditors acting behalf of the public’s interest should make sure the company’s financial statements are not misleading. All the testing and auditing procedures are to verify that the number on the financial statements, and audit testing should be supported by substantial evidence. When auditors took their responsibility for and but did not show their competence for work, they should be heavily fined because their carelessness resulted the investors making a bad decision. Furthermore, if the auditors did not take their responsibility and showed no work to support their opinions should be charged as gross negligence with a heavy fine and license taken away. If it comes down to fraud, auditors should definitely face criminal charges along with their auditing company, and their license should be taken away

Part two, entitled auditor independence, helped create a statutory code of ethics for public accounting firms. New, specific regulations were set up to dissuade ethic violations. A list was created of consulting services that audit companies cannot perform for companies that they audit and senior management conflicts were resolved by not allowing audit firms to audit if a senior manager was a former employee of the audit company. Auditors were required to rotate the companies that they audit every five years and auditors must report to an audit committee. Laws and regulations for accounting firms were encouraged. (Jennings, 2012)

The internal auditing has vastly changed since the Archer Daniels Midland Company price fixing scandal, the Enron deceit or implementation of Sarbanes-Oxley Act of 2002. Both of these corporations had two things in common greed and faulty internal auditing accounting practices. In fact, since the time of both scandals Hollywood has made two movies, “Dick and Jane” played Jim Cary, who was executive that highlighted the debauchery of Enron not mention the second movie “The Informant” played

The services provided by auditors can have a far-reaching influence. For many years, investors have relied on audited financial statements to make sound investment decisions. Thus, auditors are obliged to protect the interests of investors, taking on the role of gatekeepers (Kane, 2004). In recent years, countries around the world have witnessed examples of corporate fraud. The Sarbanes-Oxley Act, passed by the US Congress in the wake of such scandals, is considered the most influential act with the greatest impact on auditing professionals. This is an example of a government’s attempt to halt corporate fraud by improving corporate governance and strengthening the function of auditing, as a means to restore trust. However, quality and integrity

Throughout the years, the news covered stories of corporate scandals involving accounting unethical practices. These unethical corporate acts had a tremendous negative impact on these company’s stockholders, investors, employees and the whole U.S. economy. Most of these scandals would have been prevented, if the independent audits of these companies were conducted in an ethical manner. With this in mind, two corporate scandals will be the subjects of further review to understand that an auditor might encounter ethical dilemmas, if independence and objectivity are not part of the audit process.

Despite the known ethical and legal obligations, all Big Five auditors (Arthur Andersen, Ernst & Young, PriceWaterhouseCoopers, KPMG, and Deloitte & Touche) were implicated in corporate accounting scandals in 2002: Enron, WorldCom, Global Crossing, Adelphia, Cendant, AOL Time Warner, IM Clone, and Bristol Myers were just a few of the publicly traded behemoths that were involved in some type of financial misstatement. To disband such a pervasive and troubled

Research on SEC Enforcement Actions (1987-1997) by Beasley, Carcello and Hermanson concurred with this assessment, indicating that 60% of the enforcement actions were related to a lack of professional skepticism (AICPA 2000). and that "people failure" is the most common cause of audit failures (Choo and Tan 1998). In response to the SEC 's concern about the quality of financial audits, the Public Oversight Board established a panel that recommends recommended to audit firms that they provide guidance to their audit personnel about the concept of professional skepticism (POB 2000). Thus, understanding the role of professional skepticism in workpaper review may provide important insight into a recognized problem within the audit profession.

With all that having been said, it is safe to assume that auditors are not perfect; and commit ethical failure as the Arthur Andersen firm did with Enron. There are many ways or reasons

In collaboration with the National Association of State Boards of Accountancy, the AICPA published the first bill that would standardize the public accounting practice. This was legislated in the Uniform Accountancy Act. Moreover, the Restructuring Professional Standards to Achieve Professional Excellence in a Changing Environment was issued by the Anderson Committee as a reply to concerns regarding the profession’s competence to serve the public interest and maintain their trust.

Cable provider Adelphia was one of the major accounting scandals of the early 2000s that led to the creation of the Sarbanes-Oxley Act. A key provision of the Act was to create a stronger ethical climate in the auditing profession, a consequence of the apparent role that auditors played in some of the scandals. SOX mandated that auditors cannot audit the same companies for which they provide consulting services, as this link was perceived to result in audit teams being pressured to perform lax audits in order to secure more consulting business from the clients. There were other provisions in SOX that increased the regulatory burden on the auditing profession in response to lax auditing practices in scandals like Adelphia (McConnell & Banks, 2003). This paper will address the Adelphia scandal as it relates to the auditors, and the deontological ethics of the situation.

The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.