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Unit 14: Professional Ethics and Current Issues

reflected in the final accounts. The role of regulators and inspectors such as auditors has been Notes
brought into prominence with the sweeping changes that liberalization has brought in, along
with recent instances of embezzlement, which have shaken investor confidence.

14.1 Professional Ethics in Auditing

The professional bodies require strict adherence to the ethical codes and have considerable
enforcement mechanisms. Necessarily, ethical codes should be obeyed in the spirit as well as the
letter but often are not. There is a probability that external regulation may replace self-regulation.
The accounting and auditing profession has undergone many changes in recent years. There are
now three tiers:
1. Very big firms.

2. Medium sized firms.
3. Myriad small firms.
Big firms are merging to become bigger. Big firms use big audit firms to audit their accounts.
Therefore, there is also a need for audit firms to merge. In the past, all audit firms were required
to be partnerships. However, it is now possible for an audit firm to be a company.
An auditor is a professional who is responsible for evaluating some aspects of a project, business,
or individuals. Auditors often are employed for the task of determining the level of efficiency
present in the production process of a business, the efficient use of labour and other resources
associated with the business, and the veracity of the financial records of the business. Along with
evaluating a project or aspect of a company, an auditor is often expected to make recommendations
regarding the correction of negative conditions that currently impact the organization. Auditors
are also to conduct themselves in a manner consistent with the promotion of cooperation and
good relations between auditors and the sector. As promulgated by Auditors, Auditing should
adopt and uphold the Code of Ethics. The Code of Ethics states principles and expectations
governing behaviour of individuals and organizations in the conduct of auditing. It describes
the minimum requirements for conduct, and behavioural expectations rather than specific
activities.

Did u know? Auditors’ Code of Ethics is a system or code of behaviour based on moral
responsibility and obligation to explain how an auditor must behave.
Recent high-profile corporate collapses, such as Enron and WorldCom, have brought into
question the status and credibility of the accounting profession, especially auditors, “with
allegations of accountants’ violations of public trust”

Auditing standards require the auditor to verify that the information provided in the operational
and financial review is consistent with the audit report and the other information contained in
the annual report.
Ethical auditing is a process which measures the internal and external consistency of an
organisation’s values base. The key points are that it is value-linked, and that it incorporates a
stakeholder approach.
Its objectives are two-fold:
 It is intended for accountability and transparency towards stakeholders

 It is intended for internal control, to meet the ethical objectives of the organisation.

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