Question

MNO Co. has been audited by RS & Co. for two years (2015-2017) under a senior auditor Alexa. After numerous discussions and reminders from Alexa, MNO controller promised that the audit fee would be paid before the audit report for 2017 was issued. Alexa called the partner at RS & Co., Dr. James, to ensure that the audit report was not issued because MNO had only paid 10% of the outstanding amount. She discovers that Dr. James is about to sign the audit report.

• Explain the ethical problem faced by Alexa (and/or her audit firm) with MNO. Why is it a problem? What can be done about it?

Answer 1

As given in the case above, MNO Co. is being audited by RS & Co. under Alexa.

MNO Co. has promised to pay the audit fee before the audit report was issued in the meeting. But later on has paid only 10% of the total fee and was getting the report issued by the other partner of the auditor company Dr. James.

Here arises an ethical issue faced by Alexa. As the company has not paid the full fee, it may happen that after getting the report issued it may delay in payments. But as the partner of RS &Co. is signing the report, it turns into a dilemma as to what has to be done in this case.

If the company has promised to pay before the issuing of report, it is ethically wrong to get issue the reports without paying the full amount. The firm will suffer this way as it may generate losses on not being paid. Also one ethical issue is that, one of the partner is about to sign the report which leaves with no option to pressurise the company to pay their left fees.

So, this is the dilemma faced by the firm and Alexa. The above case is turning into a problem as the partner of RS &Co. is behaving unethical and doing in against of the favour of its own company. And later on its consequences would be faces by the company itself would would further will also be faced by its employees and partners.

After understanding the above case, the best solution to this is that Dr. James should be made to understand not to sign the report this early before being paid with full payment. Its consequences are also to be explained to him . He has to be informed that the company has promised to pay the full amount before issuing , so ethically it's good for the company to hold on the reports till the company is not clearing it's debts. When such happens, the company would be bound to pay the full payment as at the end of the term, it b comes necessary for the company to have its audit reports to futher take decisions and understanding the position of the company.

So, the best step is to make the partner understand not to sign the report and the company should also be pursued to pay its remaining amount to get the reports on time. This way all problems can be sorted ethically.