Ethics Article Review

980 words - 4 pages

IntroductionThis paper will review the article Through the Ethics Looking Glass: Another View of the World of Auditors and Ethics. This article was authored by Roger D. Martin and appeared in the Journal of Business Ethics in January 2007. As the title implies, this article deals with the ethical considerations faced by the audit profession.Article SummaryThe first part of the article discusses the requirement that auditors must be "looking within" the organization. In other words the auditors must be independent (outside, looking in) of the firm being audited. This does not refers to the obvious problem of being employed by the firm being audited but rather the conflict of interest issues that have arisen in the past. The author mentions the practice of hiring auditors for positions in the accounting and finance departments after the audit is completed. Other potential conflicts came about because of lucrative non-audit business between firms. As Martin (2007) states, "the Sarbanes-Oxley Act of 2002 addressed several of these potential sources of conflict."The article goes on to discuss the auditor's role in assessing client ethics. The author identifies "three sources of the demand within the auditing process for auditors to understand and assess the integrity and ethical values of audit clients - audit planning, consideration of fraud, and reporting on internal controls." (Martin)Audit planning highlights the "tasks, checks, and balances" in place within the organization. The core component of this is the "control environment" or the people within the organization. "Without a strong and healthy control environment, the other components of internal control hardly matter because no amount of control over physical or processing activities can be expected to function well if the people devising and operating the controls are not likely to exhibit high integrity and ethical values." (Martin)Auditors need to look at the ethics of a client and evaluate the potential for fraud. Auditors use the "fraud triangle" in this evaluation:•Is there an incentive to commit fraud?•Opportunities to commit fraud.•Rationalizations for committing fraud.Auditors need to constantly evaluate and re-evaluate the environment when performing an audit.The Sarbanes-Oxley Act of 2002 requires management and auditors to state their opinion of the effectiveness of internal controls. Auditors and management are now no longer faceless entities. They have an almost personal stake in the strength of the controls within the organization.Article Related to the ReadingsThe article makes repeated references to the financial statements the auditors are to scrutinize. The first chapters in the text deal with accounting environment. These readings introduce financial statements. The importance of the individual statements is discussed and the interrelationship between the statements and how they are used to make informed decisions on the strength of the organization is related. One of the points in the text discusses the importance of having confidence in the statements. Investors use these statements as critical decision making tools when making investment decisions. Without confidence in the validity of these documents, investors would be reluctant to part with their money. One only needs to look to Enron, WorldCom, and Arthur Anderson to see the reality of this. Arthur Anderson destroyed themselves by missing ethical violations. As auditors they missed (or disregarded) the "fraud triangle" discussed in the article.Without the confidence of the public in the accounting and auditing principles discussed in the reading and the article, business would die from lack of investment. As a general rule, people are not willing to hand over vast amounts of money, or for that matter, their pocket change, to organizations they have no confidence in.Application to my OrganizationI work for an investment bank and to say the Sarbanes-Oxley Act plays a dramatic role in the daily activities is to grossly understate the situation. SOX is everywhere and part of everything. The Act has spawned new departments within the organization dealing specifically with internal audits. The Internal Audit Department performs pre-audit assessments before the internal audit which happens before the first outside audit firm does their audit. When the ISO 9000 auditors are added to the mix, you have auditors tripping over auditors.While these activities can often be intrusive and time consuming for the people trying to get a day's work done, the idea that there may be fraud somewhere in the organization has never been imagined. The people involved in the process are of the highest ethical standards as are all employees of the firm.ConclusionThe spotlight is on business. The article referenced here emphasizes that fact. Realistically, the spotlight is even more intense upon the auditing profession. After the Enron, WorldCom, and Arthur Anderson disasters, the confidence in the business community has been shaken. Business will continue, that is a truism. The public need to know there is an ethical group that is there keeping a close eye on the goings on inside organizations. Auditors fill that bill. In combination with governmental regulations, the auditing profession has an opportunity to revive public confidence in the business environment. While restoring confidence is a necessary step, retaining and maintaining this confidence may be an even larger task.ReferencesMartin, R. D. (2007). Through the ethics looking glass: Another view of the world of auditors and ethics. Journal of Business Ethics, 70(1), 5-14. Retrieved February 12, 2007 from http://proquest.umi.com/pqdweb?index=1&did=1192509551&SrchMode=1&sid=1&Fmt=6&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1171747774&clientId=2606.

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