Jeremy is under pressure to complete an audit assignment for Johnson Manufacturing while his company has financial interests in the client. Despite the maximum efforts put by audit team throughout the week, it could still appear that the audit exercise was behind the stipulated time. The pressure meant that every single day and hour for the audit exercise was significant. This made Jeremy use his judgment on the small items after missing John Wren on the very day he was to pick a sample of small items for audit from the client. Meeting the deadline for the audit program was becoming more important than exercising integrity and professional competence. Any auditor should consider any ethical standards for auditors that are relevant to the industry and country of practice (Rossouw et al., 2010).
This particular scenario affects all parties attached to the audit firm and represents various stakeholders. Jeremy himself is a prominent figure of the audit firm and his activities significantly impact on the financial results of the stakeholders attached to Johnson Manufacturing. Improper sampling and judgmental audit of the client’s financial status can affect the way the government intends to frame its policies on the firms especially the issue of taxation. The judgmental samples for small items that had been suggested by Jeremy would significantly affect his client’s firm financial position, and the results will also affect other financial documents of the firm. Investors with interest in various firms attached to the audit firms are also interested in the financial performance of the firms and would look at the audit reports for decision making. John Wren, in particular, is the senior in one of the client’s firm and his activities and decisions about the audit program can affect the financial performance of his firm. He commands that the audit work be repeated with the new sample that he suggests since the previous one was too far from his judgmental.
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In this particular case, there is the need to arrive at the audit opinion objectively. A reasonable and informed third party can also be involved to ensure that audit objectivity has been adequately protected (Jackling et al., 2007). This approach shall ensure that authenticity is attained in the audit exercise and that the final result and close to accuracy (Rossouw et al., 2010). Jeremy should also employ random sampling to back up his judgmental sampling and come up with an average figure that can reflect the small items for audit. There seem not to be the possible audit adjustments concerning small items as John himself says but believes his decision is the best. However, a proper judgment can be attained if proper computation with larger items is done and then possible approximations drawn from the final results. The auditing should not fully rely on the number of small items suggested for audit but should carry out several computations for comparison purposes and then arrive at the final decision.
The action and implementation plan for this audit exercise shall represent the management’s plans for correcting and improving the financial situation. Each unit supervisor will have to document the policies and procedures for respective business activities and their financial inputs and output by the end of the first quarter in the next financial year (Jackling et al., 2007). This shall help solve the deadline problem that is the reason behind the ethical dilemma in this case study. This breakdown of activities at every quarter shall help the auditor in making his sample judgment as accurate as possible since she/he has a clue of the size of small items at every quarter. The documents prepared at each quarter regarding the audit can also be used as an easy reference whenever clarification is needed or in the case where integrity seems to have been violated.
References
Jackling, B., Cooper, B. J., Leung, P., & Dellaportas, S. (2007). Professional accounting bodies' perceptions of ethical issues, causes of ethical failure and ethics education. Managerial Auditing Journal , 22 (9), 928-944.
Rossouw, D., Prozesky, M., du Plessis, C., & Prinsloo, F. (2010). Ethics for Accountants & Auditors. OUP Catalogue .
