Professional Ethics Paraphrased

Professional ethics is an obligatory trait to have in any variety of career. Accounting is one of the most essential professions that has historically been affiliated with fraudulent transactions and crooked businessmen and women.

More specifically, auditing is an occupation the place some auditors take attain 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 additionally have the moral responsibility 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 also moreover additionally post inaccurately audits. Ernst & Young present-day audit scandal involving the audit of Weatherford International is simply one example.

There are a large variety of threats that can additionally moreover have brought on and/or persuaded the audit crew from Ernst & Young that used to be once worried in this case to put up incorrect audits. There are higher 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 decrease 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 by means of 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 adjustments made to in structure the company’s in the past disclosed remarkable tax rate, which the commercial agency organisation typically exulted to its analysts, investors, and rivals on account that it used to be once misperceived to be favorable. Weatherford International’s high-quality tax price used to be one of their advantages over its competitors. However, their fine tax charge used to be once a awful lot less rewarding than what used to be once communicated on their financial statements. Ernst & Young’s audit team, who examined the economic 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 adjustments their patron has been making but refused to report any of their doubts in their statements. The audit crew relied on their client’s explanations to justify their movements and did no longer function the required audit strategies to file the suspicious behavior. Ernst & Young is moreover at fault due to the fact they in addition ought to have averted Weatherford International’s accounting fraud virtually through successfully supervising their audit team. Ernst & Young now not stated to make sure that their client’s adjustments had been justified with the aid of tremendous evidence. Lack of supervision, responsibility, and dialog led to these outcomes.

Ernst & Young’s audit crew may additionally have encountered some threats that made them keep away from compliance with the AICPA’s Professional Code of Conduct. One chance the crew may also moreover have encountered in self-interest. The hazard of self-interest is described as an accountant benefiting “financially or otherwise, from an activity in, or relationship with a client.” Some examples of self-interest are if an accountant has a financial hobby in a client, and the effect of an engagement would maybe additionally have an have an effect on on the charge of the interest, an accountant’s partner enters into employment negotiations with a client, or if an accountant excessively depends on profits from a single client. In this case, the self-interest danger most in all probability ought to have been securing the relationship that Ernst & Young has with Weatherford International. Another chance that used to be perhaps influential was once as soon as undue influence. Undue impact is when an accountant will be counted on the judgment to that of an persona related with a client due to the client’s reputation, expertise, dominant personality, or tries to intimidate or drastically have an have an impact on on the accountant. This threat applies to this case due to the fact Ernst & Young’s audit crew relied on the explanations of their customer to justify their post-closing adjustments.

These threats can also additionally have resulted in a range of dilemmas for Ernst & Young’s audit crew and the client. An ethical quandary is a kingdom of affairs that challenges one’s functionality to pick the most moral answer or route of action. One practicable lure 22 state of affairs is that the tax supervisor of Weatherford International, Darryl Kitay, maybe could’ve no longer depended on and/or felt threatened with the useful resource of functionality of the Vice President of tax, James Hudgins, to make the false adjustments on the company’s monetary statements. Another hassle is when the audit crew used to be confronted with the misstatements on their client’s economic statements, they failed to function the applicable accounting for taxes and not noted the invalidity of the documents. The team’s preference saved Weatherford International and its stakeholders at ease for the time being, even although it was once once very dishonest. An audit team’s relationship with a consumer need to in no way be increased valued than a handy audit. A 1/3 obstacle that may additionally 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 statement degree and recognized fraud risks, as cited in the SEC order. Ernst & Young’s response used to be insufficient and should have considered greater publications of actions.

The parties concerned in this case have all resolved the dilemmas unethically. For the first dilemma, the tax manager, Darryl Kitay, should have noted 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 disillusioned the company, investors, and analysts due to the fact the actual extremely good tax cost did now not meet their expectations, then once more it would have been the truth. If Kitay recommended the fraud he would’ve most in all probability now no longer have been punished via 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 suitable file their findings in their opinion statements. Following auditing requirements would have been consistent with AICPA’s Code of Professional Conduct and would have blanketed Ernst & Young’s cognizance 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 definitely from the monetary statements, however additionally from their employees’ audits. In any business, moral choices are constantly valued and appreciated. No count how lousy the perfect effects of the monetary statements and audits were, Weatherford International, Ernst & Young, and the audit crew made things worse with the resource 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