Ethics Case
Ethics Assignment
The following paper will discuss the hypothetical research case given to us in problem 3-46 of our auditing textbook. The case depicts us as an audit firm that, during the current year’s audit of our client International Bank of Commerce (IBC), has discovered some problems with loans that IBC has issued. First, the standards of the AICPA Code of Professional Conduct, the ASB auditing standards, and the PCAOB auditing standards that apply to this will be identified and discussed. These standards will be used to analyze the problems in this case, as well as the likely effects of the possible courses of action we could take as a public auditing firm. From these possible actions, a best course of action will be picked.
Illegal Activities by Clients
Let’s first identify and discuss the applicable standards related to illegal activities by clients. Section 317 of the ASB Auditing Standards defines illegal acts as “violations of laws or governmental regulations. Illegal acts by clients are acts attributable to the entity whose financial statements are under audit or acts by management or employees acting on behalf of the entity.” (AU 317.02) Section 317 also states that an auditor does not normally have the professional competence to determine if an act is illegal. However, an auditor may recognize that some client acts may be illegal. (AU 317.03) In other words, even though we as auditors normally do not have the competence to say for sure if a client is acting illegally, our competency of the client’s business, industry and environment should make us aware that a client action could potentially be illegal in nature. The PCAOB Interim Standards currently uses Section 317 as a guideline for dealing with illegal acts by public company clients. As we will discuss later, even if an audit firm discovers potential illegal activities by a client, they are still bound by Rule 301 of the AICPA Code of Professional Conduct, which “prohibits a
The following paper will discuss the hypothetical research case given to us in problem 3-46 of our auditing textbook. The case depicts us as an audit firm that, during the current year’s audit of our client International Bank of Commerce (IBC), has discovered some problems with loans that IBC has issued. First, the standards of the AICPA Code of Professional Conduct, the ASB auditing standards, and the PCAOB auditing standards that apply to this will be identified and discussed. These standards will be used to analyze the problems in this case, as well as the likely effects of the possible courses of action we could take as a public auditing firm. From these possible actions, a best course of action will be picked.
Illegal Activities by Clients
Let’s first identify and discuss the applicable standards related to illegal activities by clients. Section 317 of the ASB Auditing Standards defines illegal acts as “violations of laws or governmental regulations. Illegal acts by clients are acts attributable to the entity whose financial statements are under audit or acts by management or employees acting on behalf of the entity.” (AU 317.02) Section 317 also states that an auditor does not normally have the professional competence to determine if an act is illegal. However, an auditor may recognize that some client acts may be illegal. (AU 317.03) In other words, even though we as auditors normally do not have the competence to say for sure if a client is acting illegally, our competency of the client’s business, industry and environment should make us aware that a client action could potentially be illegal in nature. The PCAOB Interim Standards currently uses Section 317 as a guideline for dealing with illegal acts by public company clients. As we will discuss later, even if an audit firm discovers potential illegal activities by a client, they are still bound by Rule 301 of the AICPA Code of Professional Conduct, which “prohibits a
Cited: AU AICPA Code of Professional Conduct ET AICPA Professional Standards