Professional Ethics

Professional ethics is a mandatory trait to have in any kind of career. Accounting is one of the most important professions that has traditionally been affiliated with fraudulent transactions and crooked businessmen and women. More specifically, auditing is a profession where some auditors take obtain of the electricity of their words—an auditor’s opinion involving financial statements is relied on to be accurate.

auditor’s obligation is to habits audits in accordance with auditing necessities usually traditional in the United States. Auditors also have the ethical obligation of as it be addressing any deficiencies in monetary statements, as accurate as refusing to sign off on an audit with unresolved issues. Unfortunately, some auditors fail to adhere to their moral duties and may additionally also submit inaccurate audits. Ernst & Young current audit scandal involving the audit of Weatherford International is just one example.

There are a wide variety of threats that can also additionally have brought on and/or persuaded the audit crew from Ernst & Young that used to be once involved in this case to put up mistaken audits. There are greater than one events of this audit scandal to be held accountable. To begin, two of Weatherford International’s senior accounting executives had been in the lower back of the scheme. James Hudgins, vice president of tax, advert Darryl Kitty, a tax manager, fraudulently minimized the company’s year-end provision for revenue taxes via capability of $100 million. This tax alternate was   made so that their income would correlate with the analysts’ projections.

There have been an abundance of post-closing changes made to in structure the company’s previously disclosed high-quality tax rate, which the commercial enterprise organization typically exulted to its analysts, investors, and competitors on account that it used to be once misperceived to be favorable. Weatherford International’s great tax price was one of their benefits over its competitors. However, their pleasant tax charge was once a lousy lot less worthwhile than what was once communicated on their monetary statements. Ernst & Young’s audit team, who examined the monetary statements of Weatherford International’s, failed to perceive their client’s fraudulent transactions for four years. The trouble is the audit crew knew about the year-end changes their consumer have been making yet refused to record any of their doubts in their statements. The audit crew relied on their client’s explanations to justify their actions and did no longer operate the required audit techniques to file the suspicious behavior. Ernst & Young is additionally at fault due to the fact they moreover ought to have averted Weatherford International’s accounting fraud virtually through efficaciously supervising their audit team. Ernst & Young not noted to make certain that their client’s adjustments had been justified by splendid evidence. Lack of supervision, responsibility, and dialog led to these outcomes.

Ernst & Young’s audit crew might also have encountered some threats that made them avoid compliance with the AICPA’s Professional Code of Conduct. One danger the crew may additionally have encountered in self-interest. The risk of self-interest is described as an accountant benefiting “financially or otherwise, from an pastime in, or relationship with a client.” Some examples of self-interest are if an accountant has a economic pastime in a client, and the effect of an engagement would possibly additionally have an impact on the fee of the interest, an accountant’s partner enters into employment negotiations with a client, or if an accountant excessively depends on earnings from a single client. In this case, the self-interest threat most in all likelihood ought to have been securing the relationship that Ernst & Young has with Weatherford International. Another risk that used to be possibly influential was once once undue influence. Undue impact is when an accountant will count on the judgment to that of an personality associated with a purchaser due to the client’s reputation, expertise, dominant personality, or tries to intimidate or considerably have an impact on the accountant. This risk applies to this case due to the reality Ernst & Young’s audit crew relied on the explanations of their customer to justify their post-closing adjustments.

These threats may additionally have resulted in a range of dilemmas for Ernst & Young’s audit crew and the client. An ethical dilemma is a kingdom of affairs that challenges one’s functionality to select the most moral answer or route of action. One attainable trap 22 state of affairs is that the tax supervisor of Weatherford International, Darryl Kitay, possibly could’ve not depended on and/or felt threatened with the aid of capability of the Vice President of tax, James Hudgins, to make the false adjustments on the company’s monetary statements. Another predicament is when the audit crew used to be confronted with the misstatements on their client’s monetary statements, they failed to function the applicable accounting for taxes and disregarded the invalidity of the documents. The team’s choice saved Weatherford International and its stakeholders at ease for the time being, even although it was once very dishonest. An audit team’s relationship with a purchaser need to never be greater valued than a easy audit. A 1/3 obstacle that may also have emerged is when Ernst & Young used to be as soon as confronted with a high-risk response from their audit teams, due to monetary declaration degree and diagnosed fraud risks, as mentioned in the SEC order. Ernst & Young’s response used to be insufficient and could have seen higher publications of actions.

The parties worried in this case have all resolved the dilemmas unethically. For the first dilemma, the tax manager, Darryl Kitay, could have stated the misstatements to his boss so that the economic statements would not have been despatcher for consider to the audit team. This direction of action would have dissatisfied the company, investors, and analysts because the real fantastic tax cost did now not meet their expectations, then again it would have been the truth. If Kitay advised the fraud he would’ve most in all likelihood now not have been punished by the use of the SEC. For the 2nd dilemma, the audit crew should have carried out an enough investigation on their client’s misstatements and then appropriate document their findings in their opinion statements. Following auditing requirements would have been steady with AICPA’s Code of Professional Conduct and would have blanketed Ernst & Young’s recognition because the fraud would have been detected the first time. Also, for the 1/3 dilemma, Ernst & Young should’ve recognize and detected the misstatements now no longer completely from the monetary statements, but also from their employees’ audits. In any business, ethical alternatives are continuously valued and appreciated. No matter how lousy the proper outcomes of the financial statements and audits were, Weatherford International, Ernst & Young, and the audit crew made things worse with the aid of way of falsifying archives and performing irresponsibly.

REFERENCES

https://www.accountingtoday.com/news/ernst-amp-young-to-pay-118-mn-for-failing-to-detect-weatherford-fraud

http://seekingalpha.com/article/4013888-avoid-weatherford

http://economia.icaew.com/news/october-2016/sec-fines-ey-for-weatherford-audit-failings