Ethical Dilemma

Student ID: 101084

Ethical Dilemma

Audit is a professional requires strong sense of ethics. The final result and product of auditing not only serve the client but also the whole society. Auditor’s primary focus should be serving the public, although paid by the client. Therefore, auditor encounters ethical dilemmas all the time and I’d like to talk about some ethical dilemmas I met with one client in my working experience in KPMG Shanghai in the last four years.

Auditor’s Duty

In order to meet external parties’ requirement, firms usually invite external auditors to examine their financial statement and internal control. Ethics plays an important role in this process regarding to the fairness of the completion of the work.

Based on the financial reporting and auditor report, the company’s financial status and economic reality can be truly and fairly stated, but at the same time, there still may be gaps between auditors’ behavior and the accounting rules and principles. Admittedly, there is flexibility and materialism in audit and different accounting standards, auditors should have no excuse of violating the ethical standards.

Under current China Accounting Regulation and environment, auditor has more responsibility to help to regulate the financial and accounting system in the corporate than verifying the accuracy of the figures on company’s financial reports.

Independence Conflict

According to the accounting standards, it is a conflict of interest and violation of independence if auditors provide other financial services and audit service at the same time. It sounds very easy to follow but in real work, such cases are always confronted and hard to deal with.

For example, I used to be engagement in a client which has been our audit firm’s client for about 10 years. The engagement partner, engagement manager and audit team all have very good relationship with the client. One year, the client asked me to fill in a tax form for them in their annual tax filing report and they assumed it must be a very easy job for auditor since we have examined and checked all the tax-related items when preparing the company’s financial statements and audit report. According to the work’s nature, it is not a very time-consuming or difficult job. But carefully examine the work’s nature, it is out of the auditor’s service scope. Tax filing report is a separated service in accounting firm and if the client is in need of that report, they need to initiate and sign another contract for this part of service. After auditors finish all their job, they will hand over their working papers to tax department and then, tax department will complete the tax filing report based on the auditor’s checked figures. And accordingly, the fee of tax filing report will be charged separately from the audit package.