Abstract. The article reviewed was Ethics and the Auditing Culture: Rethinking the Foundation of Accounting and Auditing. The key of the abstract is to demonstrate how traditional ethical settings led to unethical behavior and financial scandals of Enron, WorldCom, and Arthur Anderson (p. 271). The authors emphasize the role of the AICPA Code of Conduct and ethical perspectives for accountants and auditors.
Margin borrowing by investors allowed huge amounts of debt to be taken on without proper risk mitigation. Investors, knowing no better, had dumped small fortunes into the market. The fragile infrastructure of the system couldn’t handle the load and eventually caved in. Those companies that would survive the crash needed standardization and change in order for the investors’ faith to be restored. The Federal Trade Commission stepped in to fill this need. The first official document: “Verification of Financial Statements,” which was solely dedicated to provide guidance for audit, was released the same year as the crash. This document dove further than the previous decades’ pamphlets did, focusing in on small and medium sized companies, as well as the general need for the customized auditing tailored to each different companies, based on need.
Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress
An important decision for any shareholder is deciding whether or not to do business with that company. When a business is audited, the operations are reviewed to make sure that nothing is being hidden. An auditor will review the company’s financial statement and practices to confirm that each are direct and correct. The financial statements are the business’s way of representing them and showing that they are following the Generally Accepted Accounting Principles. The audit process is an important one because it provides a platform for the auditor’s opinion concerning the financial statements of the company. As part of the audit process the auditor will conduct an audit plan that outlines a number of actions that he or she will be perform while also detailing the reason for those actions. With every audit, the business’s management is in charge of handing over the financial statements that the auditor will review; while the auditor will review the statements for any material or immaterial misstatements.
This research paper analyzes the degree of an auditor's liability to clients and third parties under applicable law.
Hogan, Rezaee, Riley, and Velury (2008) noted the development of the auditing standards created due to the financial scandals that have occurred over the years. However, the authors note even with the development of SOX and SAS No. 99 there still does not appear to be a decline in financial statement fraud (232).
Auditors should look out that the company may have the opportunity to carry out the fraud. There have certain conditions that will occur this opportunity
My three-years of studying at HKU afforded me with the knowledge of financial accounting and now, as a senior, I am able to consolidate complex financial statements. However, after spending an internship working with auditors, I begin to realize the many potential pitfalls inherent in the auditor/client relationship. Facing a huge amount of pressure from their clients, who, of course, are paying the bills, auditors who should be independent commonly bend the rules to curry favor with clients and
Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,
The auditing firm has been in engagement with the company throughout the period when the fraud was being committed. One of the common and clear indicators of possible fraud was the company’s cash flow statement. The company experienced positive growth in its profits from the year 1996 through to the year 1998. However, a close analysis of the cash flow statement shows that the company had experienced negative figures of cash flow from both operating and investing activities and positive cash flow from financing activities which would not sufficiently offset the negative cash flows from operating and investing. It is therefore evident
The presence of an external auditor allows creditors, investors or bankers to use financial statements that have been prepared with confidence. Although it does not guarantee the accuracy of a financial statement, it provides users with some reassurance that a company’s financial statements give a true and fair view of its financial position and its business operations. It also provides credibility, where in business, is a major asset. With credibility, the willingness of investors, bankers and others to relate and undertake business projects with a company increases. Credibility is also important to build positive reputations.
An important function of the accounting field is to provide external users of financial statements with assurance that the financial information being presented is both reliable and accurate. This basic function of accounting is so important that there is an entire field of experts, called auditors, dedicated to assuring its proper performance. Throughout history there have been many instances in which the basic equilibrium between an institution and current/potential investor has been threatened due to a lack of accountability and trust between the two parties. This issue has been the catalyst for many discussions regarding the proper procedures a firm should follow in order to provide
Since reliable financial information is essential for investors and other stakeholders to take adequate decisions, this reliability must be backed by independent review performed by independent and certified auditing firms, which are supposed to verify and certify financial statements issued by a company’s management. If the auditor is not competent and independent from management, the audit of the financial statements loses its credibility (Schelker, 2013, p.295). According to Impastato (2003), because of audit failures, accountants are to blame for investors losing billions of dollars in earnings in addition to market capitalization (as cited in Grubbs & Ethridge 2007).
A company prepares financial statement to provide information about its financial position and performance. This information is in turn used by a wide range of stakeholders (such as investors, banks, customers, suppliers etc) in making economic decisions with respect to respective economic interest in the company. Typically, in terms of ownership by investment in shares of the company, shareholders though own the company but do not manage it. Therefore, the shareholder and other such stakeholders to get comfort in taking sound decision need independent assurance from the auditors that the financial statements reflect true and fair view of the company affairs in all material respects. Hence, in order to enhance the level of