Considering the diverse range of auditing and accounting services that are provided by accounting and auditing firms, there has been an increased level of interest on the level of ethical standard that is accepted in the accounting profession (Rittenberg, 2011). The interest is also caused by the fact that the accounting profession still faces ethical dilemmas as seen in the case study.
Ethical Problem
The ethical problem that is evident in the case study is that Sarah Teasdale sometimes signs programs after skipping some procedures. Even though she argues that the procedures do not detect anything in some cases, it is always advisable to conduct the procedures. Conducting the audit procedures ensures that there is no risk of failing to detect misstatements that result from error or fraud in the financial statements. Sarah’s action also means that she is failing to comply with her responsibility as an auditor to get reasonable assurance that the company’s financial statements are free from any material misstatement. Signing off programs without conducting any procedure can evidently make the audit fail to detect fraud, which is significant in the process.
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Another issue in the case study is the fact that Sarah has identified that some of the procedures being used in the audit process are not effective. Other than informing the management team so that the procedures can be corrected, she opts to encourage a new member of the team to adapt the unethical method. The problem, in this case, is that Sarah is failing in her duty to act in good faith considering that shareholders depend on her to ensure that the actions of the audited company are accurate and verified.
The third problem in the case study is that there is the risk of being pressured by Sarah into acting unethically when conducting the audits. The risk is high because as a new person who has only worked for nine months in the firm, there is the possibility of acting as expected by Sarah so as to obtain and maintain the status quo.
Possible Causes of Action
From the analysis of the problems above, it can be concluded that Sarah is failing in her obligation as an auditor who has been entrusted by the firm and the clients to conduct audits that can be relied upon. Considering this, there are various causes of actions that can be taken. The first action is to try and talk to Sarah and explain to her that her action is not acceptable as an accountant and to urge her to change. However, this action has its constraints because it can go against the norms of the firms. Considering that Sarah has been working with the firm for two years and she has been ignoring some audit programs, it can be assumed that this is the norm. In addition, the fact that she shares the unethical procedure with a new employee further shows that the procedure is a norm in the firm. It means that warning Sarah has the likelihood of causing a backlash from her and other auditors. There is the likelihood of not being accepted in the firm.
If Sarah is warned and does not change the way she prepares her audits, the next course of action that can be taken is informing the immediate supervisor so that she can be warned about her actions. However, there is also a constraint that relates to this action in that it can go against my personal standards of maintaining good relations with my colleagues. Evidently, if this action is taken, there will be some tension between me and Sarah, especially if the management decides to take a harsh course of action like firing her and taking legal action against her for going against her responsibility as an auditor to act in the best interest of the firm and the clients.
The other action that can be taken is going public with the information on how the company does its audit. However, this action should be taken as a last option when the management and Sarah fail to act. However, this action is considered to be drastic and the main constraint is that it goes against the professional ethical standards of acting in the best interest of the firm because it would negatively affect the reputation of the firm and its clients (Hall, 2013).
Best Course of Action
Considering that I have been with the firm for only nine months, and it is often advisable to warn the individual first before taking any drastic action because she may be willing to change, the best course of action to take is to warn Sarah and to explain to her the negative effects of her action. She will understand the repercussion of her action and will get a chance to change.
Conclusion
In many cases, auditors face ethical problems in their work such as the one in the case study. The ones identified include sometimes signing programs after skipping some procedure, not informing the management that some audit processes are not effective, and being pressured by Sarah into conducting unethically when doing audits. These problems can be acted upon through various ways including talking to Sarah and explain to her that her action is not acceptable as an accountant and to urge her to change. The other actions that can be taken include; informing the management and going public. However, the best action is to inform Sarah so as to protect the firm’s interest. It also gives her a chance to change.
References
Hall, J. A. (2013). Accounting information systems . Mason, OH, South-Western Cengage Learning. Pp. 691.
Rittenberg, L. E., Johnstone, K. M., & Gramling, A. A. (2011). Auditing . Mason, Ohio, South-Western. Pp. 280.
