Is audit facing an ethical crisis? By Rob Lewis

Accountants have always struggled with ethical problems. In 1711 the directors of the South Sea Company took on a proportion of the national debt in return for a trading monopoly. Those keeping the books knew the promise to vitalise the national economy was built on nothing but hot air and hysteria, but they kept quiet. As history shows, it didn't end well.

Last year a letter appeared in an industry magazine from a whistle-blowing accountant which illustrates that those in the profession are still facing the same old problems.

Continued...

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Comments
jon_griffey's picture

Ethics and small firms

jon_griffey | | Permalink

I disagree with Eric Kench's assertion that small firms and sole practitioners are more vulnerable to ethical pressures. As a partner in a small firm of auditors myself I am free to make my own decisions and stand up to clients, even telling them to go elsewhere. By definition the fee will always be small in absolute terms In a larger firm, there are the internal pressures to meet billing targets, recovery rates etc, which you simply do not have in a small firm. In a large firm, when you have a really large fee like for example Enron, is the audit partner really going to stand up to them over some issue and be the one that lost the fee?

St Ninian's picture

another small firm view

St Ninian | | Permalink

My guess is that most small general practitioners with an audit practice would say that they have always been concerned with ethics and are probably more free to express their ethical views to a client - sometimes quite forcefully - than perhaps is an audit partner in a large firm 'in control' of a large public interest audit case. This has, over the years certainly been the case for me and for my firm. Whatever it is that we do for the client, whether it be tax, accountancy or audit, or other work, both specialist and routine, it is our independence which both underlies everything and is valued by the client. Like Jon Griffey, I disagree with Mr Kench's assertion, and smaller audit practitioners should perhaps be concerned that such remarks could, if left unchallenged, lead to a misunderstanding of the role of the smaller auditor in the life of the smaller business and of the independent relationship to the smaller business owner/manager.

Really a bigger problem for small firms?

J Lessels | | Permalink

It's all very well saying ethical dilemmas are greater for smaller firms and sole practitioners and maybe they are from a theoretical point of view, but only big firms find themselves in a position to create major catastrophes. Enron was a disater not just becasue people did dishonest things but because they did dishonest things with billions of dollars and were then able to hurt a very large number of people financially. The same applies with other financial fiascos like Equitable Life. Small firms just don't get into these sort of numbers.

That said, I think the ethical issues affecting large firms of accountants only reflect the general ethical shortfall in Western society as a whole.

dahowlett's picture

No compass

dahowlett | | Permalink

Rob - you've missed a real opportunity to attack this issue at source: the absolute failure of the country's most senior trade association, ICAEW, to grab this thorny problem and solve it once and for all by developing a separate, examinable paper on this topic. Instead, ethics has been blended to other papers. That should be fun to watch.

That qualification could be supported by calling to account the senior leaders of the Big Four when they fall short - as they do with boring regularity. It doesn't happen. And no - I'm not B4 bashing but they're the ones making th headlines. How for example does PwC think it's going to get away withdrawing 10 years of Yukos audit certificates?

Anything else as action will continue to see the profession perceived as redundant and untrustworthy. That's not what 99% of CAs signed up for. They deserve better.