Question

1. Discuss the reasons for the accounting profession to adopt a code of professional conduct.
2. Explain the difference between an adverse and a qualified audit report
3. Is it ethical for an auditor to work extended hours on an audit and not charge it to the client? Explain your answer.
4. Do interim financial statement reports give management opportunities to manipulate results of operations for a quarter? Explain the reasons for your answer or give an example.

Answer 1

1.

Objectivity and Independence

Objectivity and independence are important ethical values in the accounting profession. Accountants must remain free from conflicts of interest and other questionable business relationships when conducting accounting services. Failure to remain objective and independent may hamper an accountant's ability to provide an honest opinion about a company's financial information. Objectivity and independence are also important ethical values for auditors.

The accounting industry usually limits the number of services public accounting firms or individual certified public accountants (CPA) can offer clients. Accounting services include general accounting, auditing, tax and management advisory services. Accountants who perform more than one of these services for a client may compromise their objectivity and independence.

For example, individuals who handle general accounting functions and then audit this information are essentially reviewing their own work. This situation may allow an accountant to hide a company's negative financial information.

Due Care and Competence

Due care is the ethical value requiring accountants to observe all technical or ethical accounting standards. Professional accountants are often required to review generally accepted accounting principles (GAAP) and apply this framework to a company's specific financial information. Due care requires accountants to exercise competence, diligence and a proper understanding of financial information.

Competence is usually based on individual's education and experience. Thus, due care may require senior accountants to supervise and direct other accountants with less experience in the accounting profession.

2.A qualified opinion is given in matters in which issues discovered in the financial statements are not pervasive and do not misrepresent the actual financial position of a business. It is a reflection of the auditor’s inability to give an unqualified opinion. If the issues discovered during the audit result in material misstatements, the opinion is escalated to an adverse opinion. The adverse opinion results in the company needing to reissue and complete another audit of its financial statements, while a qualified opinion is still acceptable to lenders, creditors and investors.

3. No, it is not ethical for an auditor to work for extended hours and not charge it to the client as the same will be violated the independency towrads the Auditor's work and auditor gives extra work to the client which shows personsal behaviour with him.

4.