PROFESSIONAL ETHICS OF AUDITORS CONTRIBUTING TO AUDIT FAILURES 1
ProfessionalEthics of Auditors Contributing to Audit Failures
Case 2.2: Golden Bear Golf
The case of audit failures at Golden Bear Golf, Inc. resulted fromlack of integrity among the accountants and auditors. Given that thecompany had pre-estimated higher profit margins than the possibleamounts to be earned, Golden Bear, Boyd and Curbello decided toconceal most of the information relating to the companies’financial statements. Paragon’s construction projects earned highlosses as opposed to the initially estimated profits (Knapp,2011). To conceal the embarrassment, Paragon’s accountantswere instructed to embellish the accounting results. This was donewith the aim of creating inconsistency in the accounting statements.
Auditors’ practice in the case also indicated lack of integritywhen the accountants and auditors changed the accounting principlesfrom the initial to one that could reflect their desired results.Paragon initially used the cost-to-cost technique. However, when Boydand Curbello noted that the projects could only earn losses, theyopted for the percentage-of-completion method (Knapp,2011). The policy change was done with a view to concealingthe truth from the public, an act that amounted to lack of integrityin auditing.
Ethically, an auditor has to operate within the required standards ofintegrity at all times. The case also presents lack of integritythrough the fact that the auditors had been promised huge benefitswhile signing the contracts, and by agreeing to work as per the needsof their client. Integrity in auditing in this case was compromisedwhen the auditors behaved in a corrupt manner as to conceal andmanipulate the financial statements with the core mission of reapinghigh benefits as earlier on promised by their client company.
All auditors must be aware of the ethical requirements in theirpractice. Integrity is a key ethical issue that must come to play inall auditing processes (Organization forEconomic Co-operation and Development., & African DevelopmentBank, 2012). Had the auditors in the case of Golden Bear Golfbeen aware of the integrity principle, most of the errors in thefinancial statements could not have occurred. To begin with, theaccountants and auditors in the case did not act independently. Byproducing results in favor of the packages that were promised tothem, they altered the useful information that could have been usedto make sound decisions.
In case the auditors knew and acted as per the integrity principles,the scandal couldn’t have been very severe. Internal auditors havea right to conceal information as per the client’s request in thecourse of the auditing process. Out of fear of embarrassment from thepublic, however, the accountants and auditors in the case opted forfull non-disclosure and inappropriate costing techniques unlike whatwas agreed on initially. Had the auditors known and practicedintegrity, possible accounting errors’ mitigation methods, policymistakes identification or correct project appraisal techniques couldhave been used as approaches to determining the best practices to usein the course of the projects.
A project can either gain profits or losses. According to auditingintegrity requirements, an activity should be carried out after acomplete appraisal of its cost worthiness. This could have been thestarting point for the auditors in the case. Ethical practicerequires auditors to report the right figures since these can be usedto make sound decisions, unlike in the case. Wrong facts or figureslead to inappropriate decisions and this makes the companies involvedto increase their financial risks. Knowledge of integrity as anethical practice, therefore, could have prevented the audit scandalpresented in the case.
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Knapp, M. C. (2011). Contemporaryauditing: Real issues and cases.Australia: South-Western/Cengage Learning.
Organization for Economic Co-operation andDevelopment., & African Development Bank. (2012). Stocktakingof business integrity and anti-bribery legislation, policies andpractices in twenty African countries: OECD-AfDB Joint Initiative toSupport Business Integrity and Anti-Bribery Efforts in Africa.Paris: OECD.