Professional Documents
Culture Documents
ETHICS
Ethics is the branch
of philosophy that
involves
systematizing,
defending, and
recommending
concepts of right and
wrong conduct. It
directs the people
with does and dont
in the regular
activities of the
individuals life.
But ultimately it is the perspective of the societys to accept the things because the thoughts are different from
person to person.
Ethics deals with intelligent animal called man. His thinking and idea changes in the fraction of seconds and man is
also selfish person he always thinks that the he is right and other are wrong, therefore the conflict of right and
wrong, does and donts gives rise to the principles called ETHICS.
The Ethics changes depending on the situations, problems and methods of tackling the problems.
Meaning of auditing:
Auditing deals with the investigation, verification and examination of books of accounts. Auditing can be held only
when the accounting ends. The accounting and auditing are interrelated. So, finally to get the clear picture of
auditing the accounts in the books should be recorded as per instruction of accounting rules and auditing principles.
Definition: As per the perspective of R.B.Bose auditing is defined as
Audit may be said to the verification of the accuracy and correctness of the books of accounts by an independent
person qualified for the job and not in any way connected with the preparation of such accounts.
Auditing involves the process of checking, clarifying and interpreting the accounts to the stake holders of the
company therefore the auditing should be conducted as the guidelines of the auditing ethics.
The life of the business really depends on the auditing reports of the company because many stake holders such as
owner/ shareholders, employees of the organization, investor, creditors, banks and others lending financial
institutions, regulatory agencies (company law board, registrar of companies, tax authorities etc), government,
researchers, customers, the society at large are highly effected because the decision making regarding the investment
by investor, business development by the owner or share holder depends on the financial position of the business
which is interpreted in the final reports I.e. profit and loss a/c, balance sheet which is examined by the highly ethical
and professionally qualified professional called AUDITOR.
It is the responsibility of the accountant to record the financial transaction in the books of accounts
systematically to ensure the accuracy of the transaction in the financials simultaneously on the occurrence
of the events.
The accountant conducts various errors which affects the transparency of auditing.
At the time of recording in the books of accounts the accountant will miss out or omit the transactions
completely or partially. This is called as error of omission.
Errors caused due to ignorance, lack of proper knowledge and intentional error to manipulating accounts
called errors of commission.
Compensating errors is including some other transaction instead of actual transaction.
Not following the accounting principles and auditing principles in the preparation of accounts called error
of principle.
Auditors are independent outsiders and there are not responsible for the internal affair of preparing the
financials of the clients entity. Therefore they are not responsible for authorize, execute or consummate
transactions on behalf of a client.
Auditor are not supposed to manipulate the source document which evidences the transactions that is
already recorded in the books of accounts.
Auditor should not assume or take over the control on the clients assets or the books of accounts.
Monitoring or advising the clients and the employees on the internal affairs, activities and performance of
the company is prohibited.
Auditors should not serve as the clients agent or general counsel and not sign payroll tax returns on behalf
of a clients and not approve the proxy invoices given by the vendor for the payment which facilitates them.
Designing or modifying the financial management system as the requirement of the client which benefits
the clients. Hiring or terminating the employees
There are certain activities that auditors are not expected to perform related to financial events. Such as follows:
Verification, inspection, observation, analyzation or reconciliation of books of accounts and close the books
accounts.
Locate invoices and vouchers for testing them.
Selecting accounting policies or procedures which helps them to prepare the accounts that benefits them.
Preparing the financials and footnote disclosures and notes on accounts. Determining the estimates
included in financial statements and determine restrictions on assets and establish value of assets and
liabilities as well as maintenance of client permanent records, including loan documents, leases, contracts
and other legal documents.
Preparing or maintaining minutes of board of directors meetings. Establishment of account coding or
classifications
Determining retirement plan contributions and implementing corrective action plans
Preparing an entity for audit.
The management should not force the auditors to manipulate the reports and give proxy reports to attract the
investor and impress the stake holders and cheat the government from paying the tax.
will be scrutinized for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its
license to work in India may be revoked.
Ramalinga Raju is charged with several offences, including criminal conspiracy, breach of trust and forgery. The
satyam founder was arrested for two days for falsifying the firms accounts.
Fall in the share of satyam:
On 12 January Satyam was removed from S&P CNX Nifty 50-share index stated Indias National Stock Exchange.
Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of
544 rupees in 2008.[14] In New York Stock Exchange Satyam shares peaked in 2008 at US$29.10; by March 2009
they were trading around US$1.80.
PWC said that they relied on the false information provided by the management of satyam which was inaccurate and
unreliable.
CID revealed that only 40,000 employees are working not 53,000 and 200 million every month for paying these
13,000 non-existent employees.
A.S.Murthy was suggested by government to become the new CEO of satyam and CA Partho Datta.
Final verdict of scam:
On 9 April 2015: Raju and nine others found guilty of collaborating to inflate the company's revenue, falsifying
accounts and income tax returns and fabricating invoices among other things and sentenced seven years
imprisonment by Hyderabad court. Raju and his brother were also fined by the court 55 million rupees ($883,960)
each.
Finally the Satyam Computer Services was acquired by tech Mahindra.
Recommendations to overcome these unethical issue:
The audit provides users such as lenders and investors with an enhanced degree of confidence in the financial
statements. An audit conducted in accordance with GAAS and relevant ethical requirements enables the auditor to
form that opinion.
To form the opinion, the auditor gathers appropriate and sufficient evidence and observes, tests, compares and
confirms until gaining reasonable assurance. The auditor then forms an opinion of whether the financial statements
are free of material misstatement, whether due to fraud or error.
Auditing has some ways to overcome the unethical issue:
Inquiring the management and the others employees who are indulged in the preparation of the financials and
understand the organization and its business operations, financials reporting and known fraud or error.
Valuing and analyzing the internal control system, testing the documents which supports the transactions and
observe the inventory count and confirm the accounts receivable and other accounts with a third party
After the auditing is completed, objective advice is given to improve the financial reporting and the internal controls
to maximize the companys performance and efficiency.
Managements responsibilities in an audit;
Managements responsibility plays a very vital role in conducting the audit and in preparing the financial statements.
Expressing Auditors independent, objective opinion on the financial statements of a company and the opinion of
auditors is given in accordance with auditing standards that require them to plan certain procedures and report on the
results of the audit, while considering the representations, assertions and responsibility of management for the
financial statements.
It is the mandatory procedures that auditors should ask management to communicate managements responsibility
for the financial statements to the auditor in a representation letter. The engagement gets concluded by using those
same words of managements responsibility in the first paragraph of the auditors report.
Auditors cannot require management to do anything or to make any representation. However, to conclude the audit
with the hope of a clean unqualified opinion issued by the auditor, management has to assume the responsibility
for the financial statements. Auditing standards are very clear that management has the following responsibilities
fundamental to the conduct of an audit:
Prepare and present the financial statements in accordance with an applicable financial reporting framework,
including the design, implementation and maintenance of internal controls relevant to the preparation and
presentation of financial statements that are free from material misstatements, whether from error or fraud.
Auditor may request for the extra information on the bases of the circumstances.
All records, documentation and other matters relevant to the preparation and presentation of the financial
statements
Unrestricted access to those within the organization if the auditor determines it necessary to obtain audit
evidence objectivity.
Practically speaking, there are some times that auditor gives suggestions about the form and content of the financial
statements, or assist the management by drafting them, in complete or partial on the bases of information provide by
management. Though managements responsibility for the financial statements does not diminish or change. Even
after auditors advising them.
THANK YOU!