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Ethical Accounting Standards?

It is the responsibility 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 applies GAAP in preparing the company's financial statements. Auditors examine (audit) financial statements to express a professional, independent opinion. The opinion reflects the auditors' 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 statements 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.

Question:

How might an auditor's ethics be challenged while performing an audit?

Solution Preview

It is a very difficult question since ethical standards, according to most articles I have read begins and ends with the internal auditor (i.e. and their moral compass). For example, according to the Business Services Industry, systems of internal control rely on people to be trustworthy; when internal controls break down, it is often because individuals fail to do the right thing. According to Kolman (2002) organizations can provide employees with ethics training, but ensuring that everyone actually follows this training and consistently lives up to ethical expectations is a much greater challenge. For example, according to Kolman, companies seeking ethical environments are up against temptation, opportunity, and all the selfish elements of human nature that lead individuals astray. In addition, according to this author, although the recoil effect of the most recent corporate scandals will pass more laws and regulations, this will not necessarily prevent these types of incidents from recurring. In addition, according to this site, the existence of rules and penalties is a deterrent for many people, but what the author sees is that rules can always be overridden or avoided; furthermore, those who circumvent the rules are most often individuals who hold high-ranking positions in the ...

Solution Summary

This essay points out that is is very difficult to enforce ethical standards within the operation of a business organization, for example. For example, according to the Business Services Industry, systems of internal control rely on people to be trustworthy, when internal controls break down, and often, in these kinds of situations, individuals fail to do the right thing.

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