Auditing Theory and Practice | Ethical & Legal Issues Report
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Added on 2020-03-02
Auditing Theory and Practice | Ethical & Legal Issues Report
Added on 2020-03-02
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Auditing Theory and Practice 1Running Head: AUDITING THEORY AND PRACTICEAuditing Theory and Practice: Ethical and Legal Issues
Auditing Theory and Practice 2Executive SummaryIn this report, ethical and legal issues related to the auditing profession are investigated by takinga case example. American Accounting Association (AAA) Ethical Decision Model is applied in the case to solve the decision related to the ethical issue. This model includes consecutive seven steps to guide ethical decision making in the auditing profession. From the application of this model, it is determined that a course of action, which is more consistent with the principle, norms and value must be selected to make an ethical decision in this profession. Due care and duty of care aspects of negligence under the tort law is also explained. The failure of auditor in establishing due care and duty of care might give legal rights to Oasis for taking legal actions against MYH.
Auditing Theory and Practice 3Answer 1: Application of American Accounting Association (AAA) Ethical Decision Model AAA model suggest a logical, seven-step process for taking decision in the business with the consideration of ethical issues (ACCA, 2017). This model is applied below to the given case of Miller Yates Howarth (MYH): Determine the FactsIt is the first step to define the problem through the consideration of all aspects. The facts which has uncovered by the auditor and bribed to overlook or to ignore are established in this step (ACCA, 2017). In this case, Jacqui Leak, an audit senior at MYH has uncovered the fact that its client named as Morgan Fertilisers Pty Limited has changed the contractor for managing waste toDumparound Ltd, which is being in charged by local council due to level of toxic at its sites. The contact does not specify damages and yet not signed by Dumparound Ltd. The toxic dumping is an illegal act and thus local council imposes heavy fines on the guilt party.Identification of Ethical IssuesAuditor’s independence and conflict of interest is the key ethical issue in the given case. The code of professional practice implies duty on auditors to keep an objective mind in auditing accounts of a firm. The ethics of auditors’ independence requires unbiased viewpoint in the any act of auditors in the process of auditing financial statements (Ferrell and Fraedrich, 2015). Auditor has ethical obligations to the client including shareholders or Board of Directors. They also has duty to act with care to the public including suppliers, creditors, employees and environment, which uses audit report to take decisions. The ethical dilemma of independence occurs due to the conflict between the interest of client and public and conflict of interests of both either client or public with the auditors’ self-interest (Turner and Weickgenannt, 2016). In
Auditing Theory and Practice 4the given case, there is a conflict of interest between the public and self-interest. The damage of an environment due to the waste management contract between Dumparound and Morgan is likely to influence the interest of public adversely. But, the self-interest of Barry related to the losing the significant and losing client causes conflict of interest. Due to this, Barry asked Jacqui to avoid environmental implications and to work independently. Related Norms, Principles and ValuesThe related norms and principles include code of ethics for professional accountants. The fundamental principles related to the accounting profession such as objectivity, integrity, professional competence and due care and professional behavior are related to the case as it demonstrates duty of auditors to act honestly and unbiased and to follow relevant laws and regulations. These principles indicates that auditors are ethical responsible to make judgments without considering self-interest (APESB, 2010). The suggestion of Barry to Jacqui for avoiding the implication of Morgan’s activities on environment can be regulated. The norm related to the corporate social responsibility is also related with this case as it implies ethical responsibility on the firms to reduce negative impact of their business activities on the environment and community. Alternative courses of actionIn the given situation, the first alternative is to accept the Barry arguments and to focus on auditing functions of the firm. The second option is to refuse the arguments of Barry and to take appropriate actions for solving the identified problem.Best Course of Action The best course of Action is one which is consistent with the identified norms, values and principles. In this case, the best course of action is to reject the arguments of Barry related to
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