Ethical Dilemma Essay Example

It is expected from the general public that professional auditors should maintain ethical standards at all time as a way of maintain public confidence within this field of auditing. It is for this reason that a professional auditor should and are expected to comply with code of ethics designed for professional auditors (Carmichael, 2001). A focusing on ethics and auditing, it is seemingly an obvious fact that auditing is only seen to be effective if and only if proper ethical performance is maintained. This study will focus on creating an understanding between the relationship which exists between auditing and ethics. By widely using Sam Pebble who is an auditor at Rock & Stone, Chartered Accountants (R&S) scenario. Further, using the seven step framework, the ethical dilemma that exists in this same scenario will be used will be discussed and resolved fully (Carmichael, 2001).

In understanding the complexity of Sam scenario concerning whether he is supposed to speed up with the various current accounting standards in SSSL, there are various issues that need to be to our concern. According to Carmichael (2001), the various issues need to be understood are; the various principles and rules need to be followed by auditors, how are auditors expected to behave during their work and how culture should be used in complying with norms within auditing. These issues can be classified into three spheres namely; practice of auditor, management and auditing firm culture and finally, the setting up of various auditing laws and standards. Sam scenario is evidently revolving under these three categories and it is due to this that a quick action using the seven steps framework is needed in resolving this kind of ethical dilemma.

Before using the seven step framework in resolving Sam ethical dilemma it is important we define what an ethical dilemma is. Carmichael (2001) asserts that, an ethical dilemma is defined as a situation whereby an important decision is expected to be made about a certain ethical action which is likely to be taken. Based on the first step within the framework, resolving Sam ethical dilemma entails determining facts within auditing and ethics. It should be understood that the conduct displayed by auditors should be beyond any kind of reproach at any given time. In the scenario, Sam should realize that any misconduct or deficiency in auditors’ integrity may result to the misinterpretation of the quality and validity of his audit work. It is necessary to understand that the application and adaptation of a code of ethics for auditors widely promotes confidence and trust among auditors and their various work (Carmichael, 2001).

In the incident where Daisy tells Sam that “it is a complicated area and SSSl’s accountant are not as up to the speed with the current accounting standards as he is” and further she goes on and tell Sam that she wants him to calculate impairment adjustments. Sam is expected to determine various facts within auditing and ethics and from there be able to judge whether it is right to carry out orders being issued to him by Daisy. If the offer in question will promote good relation and co-operation between him and SSSL accountants then Sam may decide to accept (Thorne & Libby, 2004).

Focusing on the second step, it is important that all ethical issues within Sam scenario are defined. Evidently, there are various ethical issues within this scenario. Firstly, when Daisy asks Sam to write off whatever is needed since SSSL is a profitable organization; this automatically defined a certain kind of ethical dilemma within Sam professional audit work. The disclosure of confidential information by Daisy may validate Sam integrity in his work. It is a good thing that Sam feels troubled about the writing off and takes the step of declaring that he cannot sign the audit opinion. Thorne & Libby (2004) maintains that, this is important in that he realizes that his integrity is put in question and due to his code of ethics the offer is not genuine. According to McBarnet & Whelan (1999), it is essential that he is able to maintain his public confidence from his cumulative action from the past, present and future. Sam should realize interest of auditors and ensures he act fairly with his other colleagues and a more balanced way. Ethically, auditors are required to carry out their duties diligently and carefully in accordance to various stipulated auditing procedures and standards (McBarnet & Whelan, 1999). Further, it is essential for Daisy to understand that independence from various audited entity and interest of other groups outside is not at anytime dispensable when focusing on audit professional. This implies that those in the audit profession should behave in that manner which increases rather than diminishes their defined independence.

Three issues are identified in this case namely; practice of auditor, management and auditing firm culture and finally, the setting up of various auditing laws and standards. In exercising his moral and sensitive judgments, Sam should always act to serve in the domain to satisfy the public interest. This can only be done through the maintenance of the public trust. Despite the merger having positive impact to the firm and to him as he intends to maintain his employment for future personal gains, the act of appending the signature to the unqualified auditing will have more far reaching implications to his employment record given the fact that the other accountants were not up to speed and accuracy as he was (Flesher, 1996).

This implies that there must have been some irregularities in the accounting processes that had to be solved and accurately be looked into for the audits to be true and justifiable. Secondly, the codes and practices for the auditing profession do not consider an unqualified auditing to be done on a firm. Since the merger of the two firms is to have a legal binding, the facts at hand have to be justifiable and true since the two firms are to have parallel and similar financial records. It is vital for Sam to maintain his professional identity so as to make rational and professional judgments that are ethical in the preparation of the statement. Sam has two alternatives which are to do an unqualified auditing of SSSL and have the R&S auditing contract be extended for a further 3 years or have the firm conduct a proper and detailed auditing with prior request from XYZ who are an equal party to the merger having accepted to extend the merger deadline.

In comparing the values and the alternatives, the decision will be against the ethical practices of and auditor as emphasized in the teleological theory ethics which states; “Generally, if the benefits of a proposed action outweigh the costs, the decision is morally correct.” the duties and rights set out in the auditors duty act should supersede every decision. In order to comply with the rules and regulations of an auditor, the following have to be considered (Philip, 1993).

  • What effects the decision will have on the stakeholders?

  • Are there any rights and claims that have been violated?

  • What are the interests that are in conflict?

  • What are Sam’s obligations and responsibilities?

Based on the theories of ethics, it is vital for Sam to analyse the effects the decision will have on the stakeholders. In this case an unqualified and rushed auditing to beat the 1st August deadline to have a merger with XYZ will not only have discrepancies but will be setting a false start for a merger. The rights and claims for XYZ will have been violated as the audited records would not be up to date. In addition, Sam’s duties and responsibilities do not permit him to sign off the audit records just because he is up to date with his work as it is Gary’s duty. The best option would be for the firm to ask for more time until the other accountants are finished with the accounting tasks in order to perform an audit that is perfect (Botha, 2000).

The avoidance in following the right channels in the signing of the audits may lead to negligence and eventually fraud as the audited accounts will be perceived to be deliberately misrepresented. A party in the merger XYZ in this case may suffer damages as the actual amount of the audit will not be disclosed to him/her. Errors that nay result from the unqualified auditing of the firm may be termed irregular as some information that is vital for the merging processes may have been left out to have a true and legal binding of the process. In this case the irregularities may arise from inaccuracies in the gathering and processing of financial data since it is clear from Daisy’s statement that some accountants had not completed their duties in time. Secondly, the estimates in the unqualified accounting process may result in the misrepresentation of financial facts that are in SSSL. The visible errors in the SSSL which are also visible in the application of accounting principles that are related to the recognition presentation and classification of financial data (Buchanan and Gibb, 1998).

If Sam will opt to act in accordance with the pressure from his firm will have to present information that is favourable to SSSL and may not necessarily present the real situation at hand. In the event, Sam will not be able to identify fraud and result in the misinterpreting of the generally standards of accounting that are accepted internationally (Woolf, 1997).

Sam is to make a decision that is not under any influence from his firm as the facts of the accounting process are an important step in the merger. The findings of the proper auditing processes are to form a basis under which the merging parties are to perform an audit risk evaluation. Sam owes the ultimate allegiance to the stakeholders and the investing public who are to hold him accountable in case of any irregularities. In doing this, Sam will be able to risk of not being able to accurately and appropriately modifying his much needed opinion with the management financial statements that could for one reason have been misstated materially. In case of any penalties that may be accorded to Sam for standing by the auditing principles, he has the obligation for a peer audit review (Lee, 1986).

References

Botha, H. (2000). The information audit: principles and guidelines. Unpublished Master’s dissertation. Pretoria: University of Pretoria.

Buchanan, S. and Gibb, F. (1998). The information audit: an integrated strategic approach. International journal of information management 18(1):29–47.

Carmichael, D. (2001). The CPA guide to professional ethics. New York: John Wiley & Son

Flesher, D. (1996). Internal auditing standards and practices: a one-semester course. Altamonte Springs: Institute of Internal Auditors.

Flint, D. (1988) Philosophy and principles of auditing. (Basingstoke: Macmillan, [ISBN 9780333311165].

Lee, T.(1986).Company auditing. Wokingham: Van Nostrand Reinhold, third edition [ISBN 9780412437201].

McBarnet, D. & Whelan, C. (1999). Creative Accounting and the Cross-Eyed Javelin Thrower, Chichester: John Wiley & Sons

Philip, W, (1993). “Internationalizing Audit: A study of audit approaches in the Netherlands”, European Accounting Review, No 3, pp. 555-578.

Thorne, L & Libby, T. (2004). The identification and categorization of auditors virtues.business ethics quarterly, Vol 14 (3), pp. 479-98

Woolf, E.(1997). Auditing today. London: Pearson Education, sixth edition [ISBN 9780135894668].