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The Need for applying ethics to auditing

The objective of this report is to demonstrate the value of using ethics in auditing specially for accounting, based on analysis of the idea and research. The newspaper will show the turning point from traditional auditing to ????? with regards to accounting process, including and changing advantages and functions of implementing the new notion that used in the majority of the organizations. The results of the article will guide the others to develop and perform combination of ethics and auditing which used to provide effective and accurate information in regards to financing data.


The reason for this report for term newspaper is to provide overview of ethics in auditing and view example case study, which is at Arthur Anderson Company. Actually this file is not only contain wealthy and qualitative information but and yes it can be good research for others who is determined by auditors to provide appropriate information related to financial, IT, accounting and managerial data. Indirectly, it'll enhance the development of the place.

This paper presents introduction about the ethics and auditing with a brief history to the annals and record of using ethics concept running a business specially in auditing. Furthermore, it will specify Arthur Anderson/Enron research study, the ethical characteristics that auditors should show. Furth more, the signals for the failing of the business enterprise will be clarify based on misusing the auditing in unethical way.


The business world in the first 10 years of the new millennium has suffered lots of scandals the led to the collapsing big names like Enron, Martha Stewart, leehman brothers and just lately what would be came out as the latest one Goldman Sacks company. Most of them have lifted question that relate to ethics in business and the role of auditing in nurturing signs of caution when there is any problem with these lenders earlier. And yes it has shaken the foundations of buyer assurance in the transparency, integrity and accountability of businesses and capital market segments.

In modern times there were grow the topics in marketing about failure role of audit in discovering the problems in these companies because of moral failure in auditing. Enron circumstance had led to collapse one of the best 5 auditing firms, which is Arthur Anderson. In same time it's posing questions about ethics in auditing that suffered business community today, Is there any problems in ethical expectations of auditing field and what are the ethics that governs.

As mention in modelle 2010 article, auditing in accounting is very sensitive procedures because auditors are working with money which position as more important and valuable thought than other activities like health, happiness and education. Accounting isn't just considered the monetary activities but also auditing and the proper apply of ethics. In addition, trusting and depending on auditors has lowered since previous 15 years because of unfair deceptive works and fraud which will make people to think from auditors. The majority of authors believe main reason of frauds, monument and problems of the firms is from manipulating the rules of accounting practices. Actually, financial accounting is functioned firmly on rules which provide an opportunity for folks to bend the rules with unethical behavior and illegal actions. Many accountants count heavily on guidelines, even when it is plainly not the right or moral plan of action. Although, it is good to follow rules, people tend to abuse rules. All of these reasons led the federal government, organizations and auditing companies to consider ethics as one of the pillars of auditing occupation.

Actually, recent statistics among 1500 studies show that 40% of professionals feel pressured by their employers to commit ethically doubtful acts. Respondents reported that huge number of employee who had affected to their personal guidelines to meet an organizational demand. This development experienced led a lot of people and professionals to assume that the level of ethics in auditing is playing important role in business successful or failing. (http://www. coursework. info)

In this newspaper, we will show the next:

Review some conditions and relevant works.

Overview about the concept and then focus on using ethics in auditing with details as well as profound investigation.

Discussing and examining the results, spotlight the issues that recognized, provide recommendation and final result on the task offered in this newspaper.

Background and Related Research:

In most civilizations, ethics are linked with divine origins:

Babylonian civilization received regulations of Hammurabi from sun god

God provided 10 commandments to Moses

In Greek civilization, Plato says that god Zeus gave morality to help mankind

Manusmriti Samhita contains first code of interpersonal and legal ethics in India

In fact both religious beliefs and ethics provide a need: society

Societies are built on the plank of co-existence and mutuality

All societies, whether those of humans or non-humans, need shared support, forbearance and care and attention:

Observed in societies of wolves, baboons, dolphins, etc.

Thus, two important pillars of most societies are:



Ethics in Auditing:

What will ethics in auditing mean?

Ethics: Tom Campbell identifies ethics as something difficult to attain because it is not only means knowing what we ought to do, but also how to do right things. Therefore, every person knows these principles; honesty, care, loyalty, integrity but we don't know how to adapt these.

Ethics are rules that govern the person action and make him/her do the right thing. Some times it is not breach of rules. For example resting is unethical but if a person is based on a court docket testimony he/she will be punished by law however if he/she is based on private life it is not punishable.

Adrian (2005) defines Ethics as the moral concepts and values that govern the activities and decisions of a person or group. They serve as guidelines how to act rightly and justly when confronted with moral dilemmas.

Basically, this is of ethics is hard to pin down and there are many views from many people and creators about ethics. Ethics can be identified in two meanings. First, It will define what human must do in terms of rights, obligations, benefits to culture and fairness based on the criteria of right and incorrect. For example, criteria that impose the fair obligations to avoid rape, stealing, murder, assault, slander, fraud or encourage integrity, compassion and devotion. Also it can be expectations relating to protection under the law such as the right to life, the to freedom from damage and the to privacy. Second of all, ethics identifies the development of one ethical standard. Increase feelings, laws and public norms will boost the ethical standards. So that it is important to look at one standard of ethics which is defined and recognized to ensure they are reasonable and well-founded. Studying our own moral beliefs and conduct is part of ethics to ensure that we surpass requirements that are reasonable and solidly-based. (Manuel, Claire, Thomas and Michael, 2010)

Code of Ethics: or auditors there is an official

As point out in Mollie reserve 2010, over the past few years ethics idea became quite typical and common than in the first couple of years of the twenty-first hundred years. As a result of business scandals that have shaken community, Administration released and created rules of do, ethics management programs and ethics offices. In fact, an investment running a business ethics has turned into a prerequisite for an organization's ongoing involvement in formal business networks. Also the way of ethics in auditing happens to be being mentioned in almost all of business academic discussion board. In general, Table of Directors, CEO, CFO and Audit Committees will establish a code of ethics and do that for both internally and externally since it can't be common document by official. Code of ethics is mainly used to steer the tendencies of employees predicated on a written doc that states ideals and ethical standards. The main reason for it is to help the employee to make selections among alternative conducts. Because of this law will use the words ethics, accountability, integrity and transparency in the financial reporting process which required code of ethics that laying down minimum expectations of ethics.


Ethics in auditing:

Ethics is a company's prices, which are for auditing evolved in to actions, as every company has its own values and beliefs, ethical auditing steps both, worth and beliefs, in and out of the company, as in how is functions its costumers, and exactly how it is giving every worker his, her privileges as employers, and in how is the company taking care of its financials and managements.

Ethical auditing has become something very important for companies in order to boost its performance. "Honest auditing is impartial, third-party supportable process to comprehend, measure, statement on, and assist in improving an organization's public and environmental performance". A lot of companies nowadays follow unethical tactics to be able to be competitive their competitors, though they could be punished if some of their procedures were found and proven.

Ethical auditing makes sure the company stays on with a good reputation as is possible, it actually give attention to the work done during the year, and corrects any fault that might possessed happened accidentally, concentrating on the company's moral transparency

Ethical auditing is something similar to evaluating a company's moral habit; well, why doing this is the thing we would wish to know. As each company is an integral part of it's world, which in other words any business is made to provide it's society and folks, its moral view would either bring it up and make it a trusted company, or maybe pull it down to no where. Discovering its ethics confirm to be always a base for any future advancements. Companies have started moral auditing after realizing many failures in following a business rules that the company should follow, which might cause mistrust or loss for the business.

Why companies and governments are using ethics in auditing?

How ethics is playing effective and important role in auditing?

"The general public accounting profession has long relied on its reputation for integrity and veracity as justification for its professional position and monopoly privilege predicated

on cases of acting in the general public interest. If such position and privilege are to be justified and suffered, serious thought of what constitutes moral behavior, how such behavior is motivated as well as an explicit popularity of the protection under the law and pursuits of affected functions constitutes an honest imperative for the occupation. Traditionally, work on ethics and auditing is quite thin, failing to recognize the social framework of individual activities, failing to identify the relevant constituencies of the profession, and failing to articulate processes through which the constituencies passions can be identified. Generally, the accounting literature has considered a cognitive point of view on honest decision making which views the quality of ethical dilemmas as mainly a function of the moral make-up of the actor responding within the framework of the Code of Professional Carry out. The purpose of this paper is to broaden the theoretical basic of moral research, specifically within the region of professional accounting and more generally in the region of business. We propose the use of structuration theory together with stakeholder theory and a responsibility ethic. The application of stakeholder theory is a way for identifying influenced constituencies. A responsibility ethic identifies the situatedness of a person within an ongoing professional community. Structuration theory provides a theoretical platform for articulating and looking into both the set ups within which action is completed as well as the connection between the sociable constructions and the stars. Taken mutually, the theories enable an enhanced capacity to define honest behavior in just a business context and understand the contextual antecedents and consequences of ethical serves".

Overview for Arthur Anderson/Enron case study:

Arthur Anderson was founded in 1913 in Chicago, it had about 20000 employees there were lots of speculation about the degree of ethical violation from the business when World Com that was one of clients has collapsed.

Before nov Enron in 2002, there have been five major auditing companies and now the number is reduced to four as a result of fall season of Arthur Anderson which was the auditing firm that was in charge of auditing Enron. Regulations suits that accused the auditing businesses to be one of the factors of Enron crises has harmed the company reputation in ways beyond keeping and lead to its collapsing after sacrificing the trust of its clients. The business has in business for many years.

The case has unveiled that Arthur Anderson has conspired to protect billion dollars of loses, shredded doc that pertain crucial information about Enron and removed computer records. The auditors were not independent in conditions with Enron mother board of dirctors.

In addition to Enron, World Com and Waste materials Management were among Arthur Anderson clients.

Sorban Oxley law

The law arrived as reaction to general public demand in United States to modify the industry and get back the trust tarnished by many scandals by issuing more regulation.

Conclusions And Future Work

Ethics topics are increasing recognition in the books concerning the industry the

Companies are facing tons of challenges to accomplish higher profits and more gains constantly as a result some one can look at the rules as obstacle to defeat which place many troubles on auditing job.

Auditor are facing tons of pressure to put their ethics value at highest priority when coping with clients.

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