Ethical Issues Related to the Audit Function and Managerial Accounting

Auditor’s responsibility to the public

The work done by CPAs requires a high level of ethics. Apparently, the current and potential shareholders, lenders, investors, regulatory agencies, among others players rely on the company’s financial statements to make various informed decisions about the entity (Houghton & Campbell, 2013). For the past few decades, there have been many accounting frauds and scandals widely reported in the media, which has resulted in bankruptcy protection requests, fraud charges, or even closure of accounting firms and the respective companies. As asserted by Houghton & Campbell, 2013, effects of unethical malpractices by auditors and the leading management team in some corporations has touched the lives of innocent stakeholders in one way, shape, or form. These scandals remind us of how significant it is to maintain high ethics in the overall business, and for the auditors in conducting their public obligations.

The auditors, in particular, have substantial ethical obligations that they must meet when performing their day to day duties and has significant implications to the public. Nevertheless, the state boards of accountancy such as AICPA, state societies of CPAs, the state laws among other agencies set forth various ethical regulations that their CPA members require to adhere to before they practice their duties (Knechel & Salterio, 2016). In particular, the auditors have the following ethical responsibilities to the public including all other stakeholders of the firm, which has various importance’s as explained below;

It is the responsibility of the auditors (external) to reduce the agency problem. The members of the public are the current or prospective shareholders of a firm. According to Houghton & Campbell, 2013, ethical behaviors in auditing ensures that the auditors play their vital roles as the watchdogs to help the members of the public to monitor the credibility of the information prepared by the firm’s management. The audit procedure shows a genuine and fair view of a company to all the inside and outside stakeholders. For the enhancement of credibility, it is the perception of the public that CPAs express their opinions in an impartial and reduce the conflict of interest between the management and the shareholders (Houghton & Campbell, 2013). Apparently, it is the ethical responsibility of the auditors to evaluate the company going concerns by expressing their professional opinion in their audit report to the shareholders.

Another significant auditors’ role to the public is verification of the firm’s financial statement prepared by the company’s management. The Ethics Committee of IFAC has put great emphasis on the ethical issues of the auditors. Auditors without independent may lead to interference of their audit judgment. The regulatory bodies and investors have been concerned about the effect of auditors’ rise of non-audit service, which interferes with the auditors’ independence and subsequent earning quality (Knechel & Salterio, 2016). In fact, the auditors’ essence of freedom underlies the credibility and success of the accounting profession to serve the public. Therefore, to enhance credibility in verification of all financial reports and transaction of a firm, ethics demand the auditors’ independence to be strengthened and protected by various accounting standards.

Ethical behaviors enable the CPAs to enhance public interest in conducting their professional obligation. The auditors must accept their obligations to perform their roles in a manner that will serve the interest of the public, validate a pledge to professionalism, and honor the public trust. Through the audit process and certification, the auditors provide the means for independently checking and certifying the information reported by the corporation to issue the public with the required information on the financial status of the company (Mintz, 2014). The auditors should request the disclosure of material information to support the entries made in the books of the accounts, which increases the public reliance on the audit report. Nevertheless, as stated by Knechtel & Salterio, 2016, the CPAs on behalf of the public identifies and assesses the risk of material misstatement that might be in the financial reports, whether due to fraud or errors of omission or commission, then strategize and conducts the process of audit in response to those perils. Finally, attain the audit evidence that is appropriate to give auditor’s opinion a basis. Auditors perform all these duties for good and the interest of the public who have impacted trust on them to act as the watchdogs.
Again, ethical behavior in auditing ensures that the CPAs offer both modified and unmodified opinions. Mainly, the auditors evaluate whether the financial statements prepared by company’s accountant achieve a fair presentation. With the evaluation and the analysis, they give either modified or unmodified opinions to the stakeholders, who may not have the ability to interpret or evaluate the books of accounts. The unmodified opinions get expressed when the auditor concludes that the presented financial statements are correct and fair, and can be backed up with all the essential materials concerning all applicable financial reporting contexts (Houghton & Campbell, 2013).

On the other hand, auditors who maintain ethics in their profession gives a modified opinion when they conclude that the financial reports are not correct and fair from material misstatement, or they are unable to acquire appropriate audit evidence to conclude that the financial reports are accurate (Houghton & Campbell, 2013). However, to arrive at such a conclusion, the auditors must have obtained sufficient audit evidence and maintained a high level of ethics in performing their work. Therefore, both modified and unmodified opinions give the public a general overview of the transparency of conducting the accounting tasks.

Finally, ethics in auditing obligate the auditors to communicate any matter concerning the financial reports of a firm to the public. That is, if they find it necessary to make a communication on a given matter other than those disclosed or presented in the financial reports, it is their role to issue the information backed up with their judgment according to their understanding. They might have a separate section in their report with a heading titled “other relevant matters’ or with some other appropriate title (Knechel & Salterio, 2016). It means that auditors are ethically responsible for reading both financial and non-financial information included in the annual report, and identify whether the information is materially consistency or inconsistency. Any unclear information or transactions that may appear materially misstated is issued to the public to keep them updated on the financial status of their company.

In conclusion, all the auditors must act ethically to provide the members of the public with the relevant information concerning the financial status of the given company. The ethical behaviors of the CPAs or auditors bring credit upon themselves, and also, keeps the public updated and in the light of the going concern of the company. That is, conducting an audit procedure ethically leads to positive implications on the stakeholders of a company, to the general public, and also shows the professionalism of the auditors in performing their roles.

References

Houghton, K., & Campbell, T. (2013). Ethics and auditing (p. 354). ANU Press.
Knechel, W. R., & Salterio, S. E. (2016). Auditing: Assurance and risk. Taylor & Francis.
Mintz, S. (2014). Accounting for the public interest. Springer

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