Auditor Accountability Report: Ethical Considerations in Auditing

This report delves into the critical topic of auditor accountability, examining the ethical dimensions and regulatory frameworks that govern the auditing profession. The analysis begins with a case study of the Waste Management scandal of 1998, highlighting the fraudulent financial reporting and the role of external auditors in the manipulation of financial statements. The report emphasizes the importance of adherence to Generally Accepted Accounting Principles (GAAP) and the consequences of non-compliance, including the sanctions imposed by regulatory bodies like the Public Company Accounting Oversight Board (PCAOB). It further explores the responsibilities of both CPA and non-CPA firms in maintaining ethical standards, and the challenges arising from mergers and acquisitions within the accounting sector, particularly concerning objectivity, independence, conflicts of interest, and confidentiality. The report also addresses ethical considerations related to client records, tax services, referral fees, and advertising, offering a comprehensive overview of the ethical landscape in auditing and financial reporting.

Running head: AUDITOR ACCOUNTABILITY ATTTACHMENT
AUDITOR ACCOUNTABILITY ATTACHMENT
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Analysis
During 1998, in Waste Management, Inc. a scandal occurred in the accounting books by
the external auditors. The auditors submitted an unqualified audit report to the company where
fake earnings were reported equal to $1.7 billion. The Founder/CEO/Chairman along with the
top executives were also involved with the auditors who falsely increase depreciation tie length
for their plant & equipment and other property in balance sheet. This act by the external auditors
modifies a departure from the GAAP (Ensscpa.com, 2020).
There must be a proper check on the audit reports and proper sanctions must be levied
over the unqualified auditors. As per PCAOB Rule 3502 is prohibited by Mr. Arthur Andersen
Company for omitting some relevant details and hence sanction will be levied over the whole
firm because he knowingly violated the Public Company Accounting Oversight Board (PCAOB)
rules.
An accountant in Non-CPA under code of professional conduct is similarly responsible
for the accounting statements which are prepared by them. Both the CPA and Non-CPA firms
have similar rules and regulations which needs to be followed while doing auditing of any
company (The CPA Journal, 2020).
There are some ethical issues which forms when non-CPA firms get merged with public
accounting firms and the issues are following:
 Objectivity and independence
 Due professional care and competency
 Conflicts of interest (COI)
 Confidentiality

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 Frequent requests related to client records
 Statements related to Standards for Tax Services (SSTS) and U.S. Treasury Circular 230
 Referral fees, commissions and contingent fees demanded
 Solicitations and advertising

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References:
Ensscpa.com, 2020. The Waste Management, Inc. 1998 Fraud Scandal – Ellrich, Neal, Smith &
Stohlman, P.A.. [online] Ensscpa.com. Available at: <https://ensscpa.com/waste-
management-inc-1998-fraud-scandal/> [Accessed 9 April 2020].
The CPA Journal, 2020. Overlooked Ethical Considerations In Mergers And Acquisitions Of
Accounting Practices - The CPA Journal. [online] The CPA Journal. Available at:
<https://www.cpajournal.com/2018/04/09/overlooked-ethical-considerations-in-mergers-
and-acquisitions-of-accounting-practices/> [Accessed 9 April 2020].