Ethical Issues In Auditing And Importance Of Auditors’ Liability Limitation

What to do when faced with an ethical dilemma in auditing

Each and every organization needs to prepare the financial statements of company which records all the financial and non-financial information of the business. Every listed company needs to follow the international financial reporting standards and compliance program to prepare its financial accounts and reporting the same with the financial authorities. It helps company to keep the business more transparent to its stakeholders and reflects the true and fair view of assets in effective manner.

It is analyzed that the ASA 315 divulges the laws and regulations for identification and assessing the risk of material misstatement through understanding the entity and environment at large. Each and every organization needs to follow these laws and regulations to keep the financial statement clean and away from the material misstatement in showing the true and fair view of books of accounts (Turley, 2015). The internal control system and audit procedure is set up to check the quality of the financial statement prepared. It assists in identifying the possible misstatement and issues in the prepared financial statements. However, auditors are the person who justify the prepared books of accounts and financial statements of company after reviewing the facts and recorded figures. After that on the basis of notes on accounts and other available invoices, auditors justify through his report that company has complied with the all the applicable standards and laws to prepare the books of accounts. He also report that company has divulged the true and fair view of assets and liabilities in its books of account. He acts as governance at the stakeholders by reviewing the books of accounts. Auditors check the viability of the wrongful acts and fairness of the reporting system of organization in the best interest of the stakeholders. He works as trustee for the shareholders. Nonetheless, due to the outsider to company, auditors have least direct responsibilities while reviewing the governance practice of company. He audits all the financial statements to determine whether company has proof to record the particular transactions in the books of accounts. Auditors make sure that investors and shareholders are getting the information in proper manner or not. Auditors works as trustee for the investors and they make sure that investors are getting required imperative true and fair information while taking investment decisions. However, auditors needs to understand the nature of the organization’s operation, relevant industry and other influencing factors which might negatively impact the business functioning of organization while selecting the application of the accounting policies and laws. It is analyzed that due to the auditor’s opinion and report, investors and other stakeholders who have direct and indirect interest believes that all the information shown in the financial accounts of company is more reliable and accurate (Stubbs, & Higgins, 2018). This type of auditors report does not only strengthen the reporting framework of organization but also increase the transparency of the true and fair view of recorded assets and liabilities.

ISSUE	Impact of the concerned fact on the increased audit risk. Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	RECOMMENDATION	REDUCTION IN AUDIT RISK BECAUSE OF RECOMMENDATION
Negligence on the board of directors part for the compliance with the international accounting standards and increased financial risk	It may result to destruction of the true and fair view of assets and liabilities recorded in the books of account of company. However, Auditors might fail to detect these issues due to the hidden facts and internal information from them.	Increase the governance compliance program and reporting risk which company might face (Samsonova-Taddei, & Humphrey, 2015).	IF company sets p stronger compliance regulatory program then it will result to strengthen the internal control system and which will not only detect the fraud and error in the reporting frameworks but also lower down the chance of same (Turley, 2015). The new legal compliance system will strengthen the reporting framework to reflect true and fair view of assets.
No committee and accounts department is responsible for the fraud and errors in accounting and reporting frameworks.	Accountant and auditors both should be aware of the fact that they would be responsible for the wrong doing and falsified statemetn in the books of accounts.	Linkage of accountability of auditors with the reporting risk of company.	It is analyzed that auditors should be held responsible for the acts and audit report if they have passed for the soundness of report
Changing the reporting of the system process.	Company needs to identify the accounting and reporting risk at the time when it is done. If in case auditors and accounts failed to do then they should be held responsible for the same.	Clear authority and compliance program should be set up for achieving the set objectives and goals.	Timely detection of risk and strengthen audit process should be undertaken to promote the business process which assists in mitigating the accounting and reporting issue.
Changing the operational work system to plan effective accounting internal control system.	Detection of the in-efficiency in the system process should be detected in timely manner (Köhler, Marten, Quick, & Ruhnke,. (2015).	Increase the governance compliance program and reporting risk which company might face (Anantharaman, Pittman, & Wans, 2016).	The main focus should be to keep the business records more transparent to its shareholders.

The role of auditors in financial reporting and compliance

AMERICAN ACCOUNTING ASSOCIATION MODEL	DECISION MAKING PROCESS
1. Determine the facts	In this case, David, John and other members are indulged in loan application. John is not well and shown his inability to come office and rest were indulged in doing their assigned work. After that, David Found john with his girlfriend in the restaurant.
2. Determine the ethical issues	IT shows the ethical issue of lack of commitment towards the undertaken work. John failed to meet his commitment. It increases the ethical risk. It might have negatively impacted the team work (Honigsberg, Rajgopal, & Srinivasan, 2017).
3. Identify the major principles, rules and values	Every member of team should be indulged in doing their assigned task. John has breached the trust and commitment. As per the rules and regulations, David needs to report to senior authority the misconduct done by John. John will have to pay compensation for the same.
4. Specify the alternatives	David should go and talked to John to identify the main reason of not coming office.
5. Compare values and alternatives	The values are related to how John should have respected the integrity towards the work. Alternatives are accepted as temporary solution in the specified issue. Values are considered more professionals whereas alternatives informal and based on the feelings and attachments. Values are more professional whereas the alternative solution puts forward an idea to better understand the human resource before any action is initiated.
6. Assess the consequences	If the values are perevied then there is chances that john would be terminated from the job. Team might face consequence of same. Companionship between the David and John may be destructed if he discloses this thing with higher authority. It will also result to destruction of the process system and will require new policies and program in process for the leaves.
7. Make your decision	After analysing all the details and case, it is found that David should talk to john regarding what happened and how he has been feeling. After, hearing the facts from the john and his reasons to lie with the company, he should make his own decisions whether he should go to higher authority or not. If he finds that john is taking team or organizational as granted then the same should be handled strictly (Kumar, & Sharma, 2015). However, if David complain about the John to senior managers then it will result to new legal compliance system which will be not good for the other employees.

Auditors are the key person who audit and justify all the recorded statements in the financial statements of company. The main role of auditor is to check any material mistakes and untrue information of company which is given in the financial statement of company (Ratzinger-Sakel, & Schönberger, 2015). There are more than 33 countries in which auditors are performing their role in different countries. However, statutory cap as limit is used in more than 11 countries as method to limit the auditor’s libiliteis. Nonetheless, in most of the cases, liabilities of the auditors are highly based on the undertaken contract. This cap is fixed to make auditors more responsible toward the works. It is analyzed that if auditors are held responsible for audit reporting work then it will strengthen the quality of the audit reporting frameworks. However, in setting up the auditors’ liabilities cap several factors such as auditor’s cap should be undertaken. It is required to set up cap on the auditor’s liabilities to determine whether auditors are meeting his responsibilities or not. If the direct impact of the negative action is put on the auditors then they will be afraid of passing the wrong or falsified audit report. It is required that all auditors should think that they are working under the fiduciary position and they are trustee for the company. Therefore, it could be inferred that incorporation of the auditors and setting up statutory cap on them very much imperative in this fast moving economic world (Roy, & Saha, 2018).

It is analyzed that auditors should have stautury cap as he audits all the financial statements to determine whether company has proof to record the particular transactions in the books of accounts and sharing the true and fair view of its books of accounts with its stakeholders.

Conclusion

After analysing all the details and case study of the accounting and reporting compliance program, it could be inferred that government should also make accountant and auditors responsible for their work. If any material mistakes and untrue information of company is shared even after the audit check procedure then auditors should be held responsible for their audit report.

References

Anantharaman, D., Pittman, J. A., & Wans, N. (2016). State liability regimes within the United States and auditor reporting. The Accounting Review, 91(6), 1545-1575.

Honigsberg, C., Rajgopal, S., & Srinivasan, S. (2017). The Changing Landscape of Auditor Litigation and Its Implications for Audit Quality. 92(6), 155-165

Köhler, A. G., Marten, K. U., Quick, R., & Ruhnke, K. (2015). Audit regulation in Germany: improvements driven by internationalization. In Auditing, Trust and Governance (pp. 129-161). Routledge.

Kumar, R., & Sharma, V. (2015). Auditing: Principles and practice. PHI Learning Pvt. Ltd.. 11(6), 15-85

Ratzinger-Sakel, N. V., & Schönberger, M. W. (2015). Restricting non-audit services in Europe–The potential (lack of) impact of a blacklist and a fee cap on auditor independence and audit quality. Accounting in Europe, 12(1), 61-86.

Roy, M. N., & Saha, S. S. (2018). Regulatory and Ethical Framework for Statutory Auditors’ Independence: A Review in Select Countries including India. In Statutory Auditors’ Independence in Protecting Stakeholders’ Interest (pp. 25-119). Palgrave Macmillan, Cham.

Samsonova-Taddei, A., & Humphrey, C. (2015). Risk and the construction of a European audit policy agenda: The case of auditor liability. Accounting, Organizations and Society, 41, 55-72.

Stubbs, W., & Higgins, C. (2018). Stakeholders’ perspectives on the role of regulatory reform in integrated reporting. Journal of Business Ethics, 147(3), 489-508.

Turley, S. (2015). Developments in the framework of auditing regulation in the United Kingdom. In Auditing, Trust and Governance (pp. 223-240). Routledge.

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What to do when faced with an ethical dilemma in auditing

ISSUE	Impact of the concerned fact on the increased audit risk. Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	RECOMMENDATION	REDUCTION IN AUDIT RISK BECAUSE OF RECOMMENDATION
Negligence on the board of directors part for the compliance with the international accounting standards and increased financial risk	It may result to destruction of the true and fair view of assets and liabilities recorded in the books of account of company. However, Auditors might fail to detect these issues due to the hidden facts and internal information from them.	Increase the governance compliance program and reporting risk which company might face (Samsonova-Taddei, & Humphrey, 2015).	IF company sets p stronger compliance regulatory program then it will result to strengthen the internal control system and which will not only detect the fraud and error in the reporting frameworks but also lower down the chance of same (Turley, 2015). The new legal compliance system will strengthen the reporting framework to reflect true and fair view of assets.
No committee and accounts department is responsible for the fraud and errors in accounting and reporting frameworks.	Accountant and auditors both should be aware of the fact that they would be responsible for the wrong doing and falsified statemetn in the books of accounts.	Linkage of accountability of auditors with the reporting risk of company.	It is analyzed that auditors should be held responsible for the acts and audit report if they have passed for the soundness of report
Changing the reporting of the system process.	Company needs to identify the accounting and reporting risk at the time when it is done. If in case auditors and accounts failed to do then they should be held responsible for the same.	Clear authority and compliance program should be set up for achieving the set objectives and goals.	Timely detection of risk and strengthen audit process should be undertaken to promote the business process which assists in mitigating the accounting and reporting issue.
Changing the operational work system to plan effective accounting internal control system.	Detection of the in-efficiency in the system process should be detected in timely manner (Köhler, Marten, Quick, & Ruhnke,. (2015).	Increase the governance compliance program and reporting risk which company might face (Anantharaman, Pittman, & Wans, 2016).	The main focus should be to keep the business records more transparent to its shareholders.

The role of auditors in financial reporting and compliance

AMERICAN ACCOUNTING ASSOCIATION MODEL	DECISION MAKING PROCESS
1. Determine the facts	In this case, David, John and other members are indulged in loan application. John is not well and shown his inability to come office and rest were indulged in doing their assigned work. After that, David Found john with his girlfriend in the restaurant.
2. Determine the ethical issues	IT shows the ethical issue of lack of commitment towards the undertaken work. John failed to meet his commitment. It increases the ethical risk. It might have negatively impacted the team work (Honigsberg, Rajgopal, & Srinivasan, 2017).
3. Identify the major principles, rules and values	Every member of team should be indulged in doing their assigned task. John has breached the trust and commitment. As per the rules and regulations, David needs to report to senior authority the misconduct done by John. John will have to pay compensation for the same.
4. Specify the alternatives	David should go and talked to John to identify the main reason of not coming office.
5. Compare values and alternatives	The values are related to how John should have respected the integrity towards the work. Alternatives are accepted as temporary solution in the specified issue. Values are considered more professionals whereas alternatives informal and based on the feelings and attachments. Values are more professional whereas the alternative solution puts forward an idea to better understand the human resource before any action is initiated.
6. Assess the consequences	If the values are perevied then there is chances that john would be terminated from the job. Team might face consequence of same. Companionship between the David and John may be destructed if he discloses this thing with higher authority. It will also result to destruction of the process system and will require new policies and program in process for the leaves.
7. Make your decision	After analysing all the details and case, it is found that David should talk to john regarding what happened and how he has been feeling. After, hearing the facts from the john and his reasons to lie with the company, he should make his own decisions whether he should go to higher authority or not. If he finds that john is taking team or organizational as granted then the same should be handled strictly (Kumar, & Sharma, 2015). However, if David complain about the John to senior managers then it will result to new legal compliance system which will be not good for the other employees.