Thomas Aquinas, the superb medieval commentator on Aristotle, puts the matter this way: Reason stands in different relations to the productions of art and to moral acts. volume 30, pages410–424(2005)Cite this article. The ethical course is to keep one's goal of serving others in mind: Executives to fulfil their fiduciary responsibilities to shareholders and other stakeholders by profitably making a useful product; auditors to fulfil their responsibilities to the general public to make sure financial statements “fairly” present a picture of the financial situation of a company for those with a need to use them; and others to fulfil whatever responsibilities they have in the varied world of financial services. Indeed, one accountant has suggested that accounting is an art, and a truly proficient artist can by the skilful use of GAAP make the same company look to be dizzyingly successful or failing miserably. When one looks at recent behaviour, in many cases auditing firms did not take their responsibility to detect error irregularities or fraud seriously. Auditors’ Watchdog Role Requires Professional Skepticism, to help provide a realistic evaluation of your. the AICPA Statements on Auditing Standards No. What function should they fulfill to help the economic system move forward in a way that will benefit individuals and society? In addition, auditors consider the impact of uncorrected misstatements, evaluate the potential for management bias, and assess whether financial statements are presented fairly. 2, ad. However, since more money was to be made in consulting, the responsibilities that the firm should have met as auditor were compromised for the sake of ever increasing fees. Commission regulations stipulate that these financial reports must be audited by an independent CPA in accordance with generally accepted auditing standards. This obviously creates a difficulty for while the auditors’ clients are the ones who pay the fees for the auditor's services, the auditor's primary responsibility is not to look out for the interests of that employer/client, but to look out for the interests of a third party, the public. The Eugene Police Department has been under the review of the independent auditor’s office since 2005, after the misconduct of officers such as Juan Lara and Roger Magaña, both of whom … Let us examine this requirement of skepticism. They would claim that the responsibility is merely to attest to the fact that the statements conform to Generally Accepted Accounting Principles (GAAP), arguing that it is difficult if not impossible to determine what counts as fair.Footnote 10 Common sense can provide some guidance, for there seems to be a sense in which the notion of “fairly” presented means that the report that is being audited will give the reasonable person a fairly good picture of the financial status of the entity being looked at. The Independent would like to keep you informed about offers, events and updates by email, please tick the box if you would like to be contacted. 21 art. To accumulate more? These ought to indicate numerous areas and transactions, which should have served as red flags for an auditor who was sufficiently “skeptical”. 53, published in 1988. The County Auditor is the bookkeeper for all county elected officials and many other county agencies such … Such a risk assessment requires the auditor to design the audit in such a way as to provide “reasonable assurance” of detecting errors, irregularities or fraudulent claims that are material (one large enough to influence a user of the statement to act in a way he or she would not act if there were no misstatement) to the financial statements. But what caused this lack of due care? Shillinglaw, G. (1993) ‘Accounting’, The New Encyclopedia, Britannica: Macropaedia, Vol. Contact KPM today to see how we can partner with you. In the context of this section, a watchdog is an individual or group (generally non-profit) that keeps an eye on a particular entity or a particular element of community concern, and warns members of the community when potential or actual problems arise. Those functions set the standards, the spirit of which has been seriously violated in recent years. Cf. And, for more than a century, the responsibility for the independent oversight of corporate financial statements has fallen to (the) public accounting profession. Lord Justice Lopes, not only referred to the auditor as a watchdog (not a bloodhound), but made other observations in relation to his role as a "detective." In other words, auditors must 1) act with integrity, and 2) exercise objectivity and professional skepticism. An exclusive monetary concern cannot function as an ultimate end and using monetary concerns as such an end will lead accounting firms to abandon their responsibilities and their proper goals while falling into the trap of accumulating wealth for its own sake. It is simply a reiteration of the classic statement of the auditor's function and responsibility given by Justice Burger's opinion in the 1984 landmark Arthur Young case.Footnote 7 As Burger says: Corporate financial statements are one of the primary sources of information available to guide the decisions of the investing public. In the American Institute of Certified Public Accountants’ Statements on Auditing Standards (SAS), the section titled: “The Auditor's responsibility to detect errors and irregularities.” (SAS 53) has been superseded (whether for better or worse I hesitate to say) by a section called “Consideration of Fraud in a Financial Statement Audit. (SAS 82) (I am somewhat bemused by the fact that the word “responsibility” found in the title of SAS 53 is jettisoned and replaced by the word “consideration” in SAS 82. What this means is that an accountant is a good accountant if in practicing his craft he is superb in handling the numbers. Are you looking for a qualified team of auditors to help provide a realistic evaluation of your business? An accountant is a good accountant if in practicing his craft he is superb in handling the numbers. Those then are the responsibilities of the auditor under his obligation to detect irregularities and fraud.Footnote 25 I will not bother to go through an exhaustive litany of the places where firms such as Andersen fell short in their responsibility to be skeptical of companies such as Enron and Global Crossing. “Accounting”. Are there indications of lack of control, such as recurrent crisis conditions, disorganized work areas, excessive back orders, shortages, delays or lack of documentation for major transactions? Too much attention to the question of whether the financial statements formally complied with principles, practices and conventions accepted at the time should not be permitted to blind us to the basic question of whether the financial statements performed the function of enlightenment, which is their primary reason for existence. 1 and 2: 223–244. One can assert, without fear of contradiction, that what did in fact happen was that auditors hid behind the GAAP, and not only hid behind conformity with GAAP or Pro Forma principles, but manipulated them to manage books in ways that were beneficial to the clients and harmful to the public who had a right to know the true financial picture of the company. This is the larger question of economic justice. Although the company pays their fees, public company auditors work for the audit committee and the public in general, not management. Reahi-Belkhauli, A. 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