When Dealing With Issues Such As Professional Ethics ✓ Solved

When dealing with issues such as professional ethics, the stakes can be high

When dealing with issues such as professional ethics, the stakes can be high. This is why such care is taken to painstakingly clarify terms such as integrity and independence in the AICPA Professional Code of Conduct, as they could otherwise be open to interpretation. In this week's discussion, you will find illustrative examples of these key principles to share and discuss with your peers.

First, review the terms and definitions identified in the "Principles of Professional Conduct" section of the preamble to the AICPA Professional Code of Conduct. Select one of the principles (e.g., responsibilities, public interest, integrity, objectivity and independence, due care, or scope and nature of services) and research a current event that demonstrates that principle being threatened or otherwise not adhered to. This does not need to be a case strictly about accounting—it could be any relevant business scenario. If you have trouble finding a current event, you can create a hypothetical scenario related to your final project business.

Sample Paper For Above instruction

Professional ethics serve as the backbone of trust and integrity in business practices, especially within the accounting profession governed by the American Institute of CPAs (AICPA). The core principles outlined in the AICPA Professional Code of Conduct are designed to uphold public confidence and ensure ethical decision-making. Among these principles, integrity, responsibility, and independence are particularly critical in maintaining the profession's credibility. This paper examines a recent real-world scenario where the principle of independence was compromised, highlighting the importance of vigilance and adherence to ethical standards.

Independence is fundamental in accounting because it ensures objectivity and impartiality in auditing and financial reporting. When auditors or accountants lose their independence, the reliability of financial statements comes into question, potentially leading to financial scandals, loss of stakeholder trust, and legal repercussions. One recent case that exemplifies the threat to independence involved the auditing firm Ernst & Young (EY) and its work with a major corporation under investigation. In 2022, EY was scrutinized for allegedly providing consulting services to a client while simultaneously auditing their financial statements, creating an apparent conflict of interest that compromised their independence (Securities and Exchange Commission, 2022).

The situation raised concerns because the dual roles created a situation where EY could potentially prioritize client retention over objectivity in their audit opinion. This erosion of independence was especially troubling considering past incidents where compromised audits failed to identify significant financial misstatements, leading to shareholder losses and legal action. The SEC subsequently increased its oversight of audit firms to prevent such conflicts of interest, emphasizing the importance of maintaining independence to preserve market integrity.

This scenario demonstrates how the principle of independence can be threatened when auditors or accountants engage in activities that override their impartial judgment. The pressure to retain lucrative consulting contracts can tempt firms to overlook ethical boundaries, thereby risking their reputation and the trust placed in their work. Ethical codes like the AICPA's emphasize that independence is not only a matter of compliance but also a professional obligation that safeguards the interests of the public and the credibility of financial reporting.

Moreover, regulatory measures have been implemented to reinforce independence, such as mandatory cooling-off periods and stricter audit partner rotation requirements. These steps are designed to prevent long-term relationships from fostering complacency or undue influence that could compromise objectivity. The EY case underscores the ongoing challenge of upholding independence in a competitive business environment where financial incentives may conflict with ethical standards.

In addition to regulatory frameworks, ethical culture within firms plays a critical role. Firms must cultivate environments that prioritize ethical decision-making and provide channels for whistleblowers to report breaches. An emphasis on ongoing ethics training can also reinforce professionals' understanding of their responsibilities under the AICPA Code, including the importance of independence and objectivity.

In conclusion, the breach of independence exemplified by the EY scandal highlights the vital importance of adhering to ethical principles rooted in integrity and objectivity. Such breaches threaten not only individual reputations but also the broader trust in financial reporting and capital markets. As future professionals, accountants and auditors must remain vigilant and committed to the highest standards of ethics to uphold the public interest and maintain the integrity of the profession.

References

• Securities and Exchange Commission. (2022). SEC charges EY with misconduct related to independence violations. SEC.gov. https://www.sec.gov/news/press-release/2022-1234
• American Institute of CPAs. (2023). Principles of Professional Conduct. AICPA.org. https://www.aicpa.org/research/standards/codeofconduct.html
• Christensen, J., & Gibbins, M. (2021). Ethical challenges in contemporary auditing: Maintaining independence. Journal of Business Ethics, 162(4), 533–546.
• Moore, L. (2020). The significance of independence in financial reporting. Accounting Review, 95(2), 183–202.
• Whittington, G. (2019). The impact of regulatory policies on auditor independence. Accounting, Organizations and Society, 76, 25–39.
• Public Company Accounting Oversight Board. (2022). Audit quality policies and independence. PCAOB.org. https://pcaob.org/inspection-reports
• Krause, L., & Ruchala, K. (2018). Ethical reasoning in accounting: Challenges and solutions. Journal of Accountancy, 226(1), 50–55.
• Nair, L., & Johnstone, K. (2017). The role of professional ethics in auditing. International Journal of Auditing, 21(3), 156–169.
• Barth, M. E., & Landsman, W. R. (2010). How did financial reporting contribute to the financial crisis? Accounting, Organizations and Society, 35(2), 226–255.
• Fisher, C., & Ferrell, O. C. (2022). Business ethics: Ethical decision making & cases. Cengage Learning.