Question

Ethical Dilemmas and Auditor Independence.

1) Examine the role of professional ethics in conducting an audit. Select an ethical dilemma that may arise during an audit and discuss how you would resolve it.

2) Discuss auditor independence in the AICPA Code rules. Examine current safeguards available to reduce the risks of violating auditor independence.

Answer 1

1) Examine the role of professional ethics in conducting an audit. Select an ethical dilemma that may arise during an audit and discuss how you would resolve it.

2) Discuss auditor independence in the AICPA Code rules. Examine current safeguards available to reduce the risks of violating auditor independence.

Answer :

Professional ethics refers to the professionally accepted standards of personal and business behavior, values and guiding principles. They are established by professional organizations to guide members in performing their job functions according to ethical principles.

Ethical auditing is a process which measures the internal and external consistency of an organisation's values. It helps to capture the company's ethical profile. Companies recognise the importance of their financial profile for their investors, for their customers, and of their profile as an employer for their current and potential employees. Codes of ethics are important as they set limits for unethical behaviour and also offer guidance in ambiguous situations.

Ethical dilemmas are extremely complicated challenges that cannot be easily solved. Its a real situations where a person must choose between two possible options, all of which are morally unacceptable. Ethical dilemmas are significant in professional life. Some companies follow their own code of conduct and ethical standards and Violation of these may lead to disciplinary sanctions.

for example: In a hotel,you saw your friend’s husband engaged in some serious flirting with another women. Do you tell your friend and ruine her marriage life or do you pretend you never saw that?

Ethical dilemmas can be solved by these steps:

1. Determine whether there is an ethical issue or dilemma.

2. Identify the important values and principles involved in it .What meanings and limitations are typically attached to it

3. Rank the values in which your professional judgement are most relevant to the issue and also provide for prioritizing one competing value over another.

4.Develop an action plan that is consistent with the ethical priorities that have been determined as central to the dilemma

5.Implement your plan, utilizing the most appropriate practice skills and competencies.

An independent auditor is one who is not an employee of the company that he or she is auditing. Independent auditor examines the financial records and business transactions of a company with which he is not affiliated. Section 101 sets the various requirements to establish auditor independence and conditions that nullify it. Knowingly allowing a member who is not independent to continue to work on an engagement can result in disciplinary action from the AICPA.

Auditor independence is impaired if a member on the team has a direct or indirect financial interest in the client. If an audit member is made a job offer by the client and does not immediately report and remove themselves from the engagement, their independence is impaired.

It is crucial that each member of the audit team review the threats to independence. Auditors can use safeguards to eliminate threats. Each situation is unique, and the auditors must use their professional judgement to determine if the safeguard is appropriate.