Auditors should be held to higher standards than people in other professions because of the complexity, sensitivity, and significance of their work. Many cases of financial fraud involving multinational corporations have been reported in the past. For instance, the Waste Management, Enron, WorldCom, Tyco, HealthSouth, Freddie Mac, American Insurance Group, Lehman Brothers, Bernie Madoff Investment Securities LLC, and Saytam frauds are examples of corporate accounting scandals that had severe financial and economic consequences (McPhail & Walters, 2009).
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They happened because of financial fraud committed by individuals who contravened accounting ethics. Auditors should be held to high standards because the consequences of their unethical actions are very severe because they affect the wellbeing of people, businesses, and countries (McPhail & Walters, 2009).
The collapse of the aforementioned multinational corporations had severe effects on the global economy. The consequences of the unethical actions of individuals in other professions are not as severe as those of accountants. External auditors are expected to practice better and stronger professional judgment than internal accountants because internal accountants can be easily compromised by their companies and as a result conceal evidence of fraud. Internal accountants are part of the organization and provide an ongoing assessment of day-to-day financial activities (McPhail & Walters, 2009).
Therefore, they are required to practice great professional judgment because it is easy to detect illegal transactions while dealing with daily or weekly organizational activities. External auditors are independent of the organization they audit and provide an annual assessment of financial accounts and statements, and decide whether they adhere to accepted standards of accounting. They are expected to practice greater professional judgment because they serve the interests of the public while internal accountants serve the interests of their organizations (McPhail & Walters, 2009). External auditors usually work with government regulatory agencies such as Securities and Exchange Commission (SEC) to audit companies that have been suspected of illegal financial activities. Therefore, their tasks are more difficult than those of internal accountants.
Auditors need virtues such as skepticism, honesty, transparency, objectivity, and perseverance in order to help mitigate the risks of failure to detect material fraud in financial statements (McPhail & Walters, 2009). Auditors need to persevere and keep asking questions until they get the answers they seek. Professional skepticism empowers them to maintain the quality and integrity of the auditing process. They need to evaluate deeply, critically, and extensively the sufficiency and accuracy of audit evidence presented by an organization (McPhail & Walters, 2009).
Their attitudes, mindsets, and actions must be flexible. Moreover, the three components must interact effectively during an audit. An auditor needs to reject any less-than-persuasive evidence that an organization’s management presents because it could be a cover up for material fraud. Being skeptical is an accounting standard that is highly valuable in unearthing any evidence that could have been concealed. It is also important for auditors to fully comprehend the influence of pressure on their attitudes, mindsets, and actions in order to enhance the reliability and quality of audits. Implementing certain safeguards that eradicate external pressure from an organization’s management is an important virtue that can improve the efficacy of the auditing process (McPhail & Walters, 2009).
Objectivity enhances the quality of an audit and eradicates any bias that could compromise the integrity of the process. On the other hand, honesty and transparency allow auditors to remember and prioritize their duty to investors and the public.
McPhail, K., & Walters, D. (2009). Accounting and Business Ethics: An Introduction. New York, NY: Routledge. Web.