Ethical Decision Making & Cases-Free-Samples -Myassignmenthelp

Questions: 1.Using the American Accounting Association (AAA) ethical decision model Explain the Ethical Issues involved here and recommend a course of action for Jacqui.2.With reference to relevant Case Law, Prepare a report for the Managing Partners of MYH on the strength of any negligence case that Oasis might bring against MYH. Answers: Introduction In this report, ethical and legal issues related to the auditing profession are investigated by taking a case example. American Accounting Association (AAA) Ethical Decision Model is applied in the case to solve the decision related to the ethical issue. This model includes consecutive seven steps to guide ethical decision making in the auditing profession. From the application of this model, it is determined that a course of action, which is more consistent with the principle, norms and value must be selected to make an ethical decision in this profession. Due care and duty of care aspects of negligence under the tort law is also explained. The failure of auditor in establishing due care and duty of care might give legal rights to Oasis for taking legal actions against MYH. 1.Application of American Accounting Association (AAA) Ethical Decision Model AAA model suggest a logical, seven-step process for taking decision in the business with the consideration of ethical issues (ACCA, 2017). This model is applied below to the given case of Miller Yates Howarth (MYH): Determine the Facts It is the first step to define the problem through the consideration of all aspects. The facts which has uncovered by the auditor and bribed to overlook or to ignore are established in this step (ACCA, 2017). In this case, Jacqui Leak, an audit senior at MYH has uncovered the fact that its client named as Morgan Fertilisers Pty Limited has changed the contractor for managing waste to Dumparound Ltd, which is being in charged by local council due to level of toxic at its sites. The contact does not specify damages and yet not signed by Dumparound Ltd. The toxic dumping is an illegal act and thus local council imposes heavy fines on the guilt party. Identification of Ethical Issues Auditors independence and conflict of interest is the key ethical issue in the given case. The code of professional practice implies duty on auditors to keep an objective mind in auditing accounts of a firm. The ethics of auditors independence requires unbiased viewpoint in the any act of auditors in the process of auditing financial statements (Ferrell and Fraedrich, 2015). Auditor has ethical obligations to the client including shareholders or Board of Directors. They also has duty to act with care to the public including suppliers, creditors, employees and environment, which uses audit report to take decisions. The ethical dilemma of independence occurs due to the conflict between the interest of client and public and conflict of interests of both either client or public with the auditors self-interest (Turner and Weickgenannt, 2016). In the given case, there is a conflict of interest between the public and self-interest. The damage of an environment due to the waste management co ntract between Dumparound and Morgan is likely to influence the interest of public adversely. But, the self-interest of Barry related to the losing the significant and losing client causes conflict of interest. Due to this, Barry asked Jacqui to avoid environmental implications and to work independently. Related Norms, Principles and Values The related norms and principles include code of ethics for professional accountants. The fundamental principles related to the accounting profession such as objectivity, integrity, professional competence and due care and professional behavior are related to the case as it demonstrates duty of auditors to act honestly and unbiased and to follow relevant laws and regulations. These principles indicates that auditors are ethical responsible to make judgments without considering self-interest (APESB, 2010). The suggestion of Barry to Jacqui for avoiding the implication of Morgans activities on environment can be regulated. The norm related to the corporate social responsibility is also related with this case as it implies ethical responsibility on the firms to reduce negative impact of their business activities on the environment and community. Alternative courses of action In the given situation, the first alternative is to accept the Barry arguments and to focus on auditing functions of the firm. The second option is to refuse the arguments of Barry and to take appropriate actions for solving the identified problem. Best Course of Action The best course of Action is one which is consistent with the identified norms, values and principles. In this case, the best course of action is to reject the arguments of Barry related to keep focus on auditing function. The auditor would report to the members of organizational governance such as board of directors or audit committee. Professional advice can also be taken from the professional authorities (ACCA, 2017). Apart from this, the issue can be reported to the local council as they are much concerned for the toxic dumping. Consequences of Each Possible Action In option 1, Jacqui will accept the fact that the auditing firm is only responsible for correcting the financial reports and thus they lack ability to judge a firms responsibility on the grounds of corporate social responsibility. Jacqui would enjoy the senior position at MYH. But, he would also face internal conflict or guilt due to his personal values to protect the environment. He is quite interested in environment issues and participated in related community work. The acceptance of Barrys arguments would make him to live with himself knowing that he did oppose to the personal values and wrong to the society (Glover Prawitt, 2014). Due to this, Jacqui would experience guilt. The second option is to refuse the Barrys arguments and to report the matter to the responsible authorities. This may have adverse impact on the client base of the MYH as Morgan is the significant and long-standing client. It would affect the clientauditor relationship. But, at the same time, this option could also have positive impact on the reputation and image of the MYH due to its responsible behavior towards the environment and consequently society. It could enhance social standing of the auditors. This firm would be able to gain the confidence of public and the shareholders, which may cause increase in the client base and popularity (Saeidi et al., 2015). The social responsible act of this firm may have positive influence on the financial and non-financial performance that would benefit in long-run. Decision The ethical decision is second option, which suggests Jacqui to act in responsible manner towards the society by avoiding the arguments of Barry related to the auditors functions and responsibilities. 2.Common Law on Negligence Issues during the Audit Process In the given case, legal issues raises for MYH on the grounds of common law of negligence. It is claimed by Oasis with evidences that MYH showed negligence behavior toward its profession of auditing. It did not quantify the inventory at the end of the year due to which audit report shows wrong estimation of inventory. The evidences are also presented to show negligence due to pressure of Morgan to audit the financial statements in a month (Latimer, 2012). By using audit financial reports, Oasis made decision to take over and thusorgans negligence act have affected shareholders interest. Due care aspect of negligence law might also be used by Oasis against MYH. In order to prove negligence, it is critical to prove the absence of due care in the conduct of a defendant auditor. In tort law, it is a legal obligation on an individual to follow standard of reasonable care in performing contractual acts, which is termed as due care. If a party proves presence of reasonable care in performing act then the other party could not be able to prove negligence (Du Plessis et al, 2010). Thus, it is the first element to establish for preceding an action under the negligence law. The AU Section 230 indicates the duties, rights and liabilities of auditors under due professional care in performance. In accordance to this, an independent auditor is accountable to observe the used standards in the development and reporting of financial statements. In auditing profession, due care requires the application of knowledge, skills and ability to analyze the competency and adequacy of the evid ences for evaluating the evidences presented in accounts of firm with the integrity and objectivity. In the given case, the physical verification of quantity and quality of the inventory held in the warehouse of Morgan at the end of year is not verified with integrity objectivity (PCAOB, 2017). The inventory was overvalued in financial statements and the management did not consider the value in inventory due to the obsolescence. The auditors due care also includes the determination of material weakness in the financial statements. Time pressure from the management of company on the auditor might also use to show the negligence. The auditor is accountable to work independently without considering pressure or influence from the client or other associated parties to ensure reasonable assurance and due care in the profession (ACCA, 2017). This aspect might also be used by Oasis to make claim against the MYH. In tort law, negligence is one of the key tort in which occurs due to failing one of party to act with possible care. In accordance to common law of negligence, duty of care indicates relationship and situation under which an individual or firm becomes legally liable to perform duty of care. For establishing duty of care, two factors are considered including reasonable foresight of harm and relationship of proximity (Strong and Williams, 2011). Reasonable foreseeability test is conducted to determine whether the consequences of an individuals conduct is enough foreseeable, which causes injury or damage for the other person. If injury or damage to the other person from an action could have been predicted reasonably then defendant auditor owns duty to care towards the plaintiff. This test is most common in establishing the duty of care. In presence of privity of contract between the auditor and client, the auditor is not liable to own duty of care to the third party (Bailey, 2016). On the grounds of duty of care aspect of negligence, Oasis might bring against the MYH. In the case of Woodhouse and cooke JJ, the court held the relationship of proximity between the auditor and third party. The auditor owns a duty to take care in its function of auditing the accounts of a company. It is reasonably foreseeable that apart from the client, some other parties can rely on the audited accounts. The audited accounts are public report and it is reassembly foreseeable one might use them to take takeover decision. The wider liability of auditor is established as they play a critical role in protecting the rights of investors. If an auditor takes responsibility to audit accounts of a company voluntarily then the auditing firm must accepted responsibility towards the shareholders but also for those parties, which need of using audited accounts can be reasonably foreseeable (Keenan, 2008). The decision of an investor to make takeover decision based on the audited accounts is reasonably foreseeable or obvious, which confirms relationship of proximity between the au ditor and third party and establishes duty of care under the negligence law (Dennis, 2015). In the given case, Oasis might use this case against MYH by presenting evidence of making takeover decision based on the audited accounts. Through this law, Oasis might take legal action against the MYH. For ensuring the reasonable foreseeability, it is critical to ensure the class of people, which dependency on the audited accounts can be predicted at the reasonable level. The class of people aspect might also be used by Oasis against MYH as in several previous cases such as Twomax Ltd v Dickson (UK 1983) and McFarlane and Robinson (1983). In this case, the court held that the duty of care is owned towards the investors. The defendant auditor is liable to pay damages for the third party investors, who made decision to invest in a business on the basis of the audited accounts (BPP Learning Media, 2015). It is obvious that audited accounts of a firm can be used by investors to make investment decision. On the basis of reasonable foreseeability, Oasis might take actions against the MYH under the negligence of trot law. References Accounting Professional and Ethical Standards Board (2010). APES 110 Code of Ethics for Professional Accountants. 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Complete Tort Law: Text, Cases, Materials. UK: Oxford University Press. Turner, L., Weickgenannt, A. B. (2016). Accounting Information Systems: The Processes and Controls. USA: John Wiley Sons.