Auditor's Professional Ethics and Legal Liability - Essay Example

Auditors’ Professional Ethics and Legal Liability Principles of the AICPA of Professional Conduct In order to maintainthe professional reliability, accounting firms have set their own code of professional conduct. The principles of the AICPA Code of Professional Conduct, cited in Reilly, McDonnell, Winogard, Gerson, & Jaenicke (1999) state that;the Certified Public Accountants should exercise ‘sensitive professional and moral judgments in all their activities’,the members should conduct audit in such a way that it will ‘serve the public interest, honor the public trust, and demonstrate commitment to professionalism’,the members must ‘perform all professional responsibilities with the highest sense of integrity’,the members have to ‘be independent in fact and appearance in providing auditing and other attestation services’,a member should observe profession’s technical and ethical standards, strive continually to improve competence and quality of services, and discharge professional responsibility to the best of the member’s ability’, anda member should follow ‘the principles of the code of professional conduct in determining the scope and nature of services to be provided’.

(Source: Reilly et al. 1999, p.45). Despite the legality, some actions sometimes go against professional ethics. For instance, ‘Compensation’ though is a legitimate action it can become unethical when the top executives of companies fix ‘excessive compensation’ for themselves (Anthony, 2004, p.28). Accountants and auditors must have a code of conduct so as to coordinate their work and to fix a standard for their actions. The significance of the predetermined code of conduct is that it enables accountants and auditors to carry out their duties and responsibilities more accurately and transparently.

The code of conduct remains to be an assessment tool for management to evaluate employees’ professional ethics based on their performance.2. Legal and ethical considerations in auditing profession In order to uphold the reliability and integrity of the profession auditors must comply with legal and ethical norms of the firm. For instance, an auditor should not reveal the audit report or any information concerned with the firm under audit to any persons or companies other than to the management which assigned the audit work.

It is very difficult to bring out a fraudulent action if it is committed by persons at the higher level of the management. However, auditor should take all possible efforts to reveal the organizational misconduct of any sort. The auditor being held criminally liable under current regulations may suffer cash fine or imprisonment subsequent to his/her mistake on the concern. The punishment may also differ for intentional and unintentional mistakes which have committed during the course of audit.

An auditor can minimize his legal liability by submitting audit memorandum in order to prove that he has discharged the responsibilities correctly. Audit memorandum is a personal document of the auditor which consists of all details and explanations of audit work he/she had performed. This document helps to defend the auditor in case of lawsuits and thereby minimizes his/her legal liability.3. Impact of unethical practices Individuals like accountants, managers, and auditors play significant roles in the sustainable profitability of a firm.

If the persons at the helm of affairs are unethical or motivated by incentives and bonuses, the condition would impede the internal controls and overall integration of the company. The scandals occurred in some of the major US corporate giants recently can be considered as the best example of auditing misconduct. The unethical objectives prompt managers and accountants to focus on ‘profit maximization’ and thereby increase in their incentives and bonuses. Since they always give priority to their own wellbeing, such unethical activities will adversely affect a company in the long run.

ReferencesReilly, V. M. , McDonnell, P. J. , Winogard, B. N., Gerson, J. S. & Jaenicke, H. R. (1999). Montgomery Auditing Continuing Professional Education. Canada: John Wiley and Sons, Inc. Print.Anthony, R. N. (2004). Rethinking the Rules of Financial Accounting: Examining the rules for proper reporting. McGraw-Hill Professional. Print.