Question

Ethics Case 1-8 Auditors' responsibility how might the auditor's ethics be challenged?

It is the responibility of management to apply accounting standards when communicating with investors and creditors through financial statements. Another group, auditors, serves as an independent intermediary to help ensure that management has in fact appropriately applied GAAP in preparing the company's financial statements. Auditors examine financial statements to express a professional, independent opinion. The opinion reflects the audtior's assessment of the statements fairness, which is determined by the extent to which they are prepared in compliance with GAAP. Some feel that it is impossible for an auditor to give an independent opinion on a company's financial statement because the auditors' fees for performing the audit are paid by the company. In addition to the audit fee, quite often the auditor performs other services for the company such as preparing the company's income tax returns. How might an auditor ethichs be challenged whie performing an audit? Using the Analytical Model for Ethical Decision how would I respond?????

Answer 1

Answer

It is the responsibility of management to apply GAAP appropriately. Auditors serve as independent intermediaries to help ensure that management has in fact appropriately applied GAAP in preparing the company's financial statements. Auditors examine (audit) financial statements to express a professional, independent opinion about whether the statements fairly present the company's financial position, its results of operations, and its cash flows in compliance with GAAP. Audits add credibility to the financial statements, increasing the confidence of those who rely on the information. Auditors, therefore, play an important role in the capital markets.

Auditors express an opinion on the compliance of financial statements with GAAP. "Present fairly...in conformity with accounting principles generally accepted in the United States of America"...a clean opinion...normally this is what you see because companies fix any issues auditors tell them about.
The audit report for public companies also provides the auditors' opinion on the effectiveness of the company's internal control over financial reporting.

In most states, only CPAs can represent that financial statements have been audited in accordance with generally accepted auditing standards