The SEC released its final rule to implement a code of ethics under SOX Title 404. The stock exchanges have proposed that each company listed on the exchanges publishes its code of ethics. Discuss whether or not these additional disclosures will both have a positive impact on public confidence and influence investors’ behavior. Support your position.
Outrage over moral and financial delinquency by the senior management of public corporations led to the channel of historic lawmaking redefining the roles and errands of companies and those who attend them. Greed and management of accounting standards elevated many inquiries about the values of those at the wheel of governments that depend on on the public markets, as well as the scheme of checks and balances that be present in corporate America. Congress and the Securities and Exchange Commission have since made substantial fluctuations in the mistake of public companies. They also have asked public companies to divulge the fundamental values by which they function, and by which the conduct of executives may be restrained. Senior management and directors are confronted to scrutinize the “tone at the top” of their administrations, and to accentuate ethics and integrity in corporate decisions.
Evaluate the impact that a company’s code of conduct can have on promoting positive employee behavior, improved decision making, or the willingness to report unethical behavior of coworkers. Recommend at least two ethical policies that might encourage employees to report unethical behavior.
Outside what is officially articulated, the measure of the achievement of any code of ethics will be the informal, private interchange, truly demonstrating the culture of an organization with reverence to its exposé policies. In these recurrent conversations, personalities complicated in the disclosure process sense the working values of the association, or “how effects really grind around here.” In this setting, the “tone at the top” is serious in determining the culture of fair and honest revelation. The tone of senior administration is replicated not only in the formal course a corporation uses to fold data, but also in the amount of trust that it generates in terms of promising discussion and deliberation on compound revelation issues. In specific, it is significant to note the amount to which the values of uprightness and impartiality are a legitimate topic of discussion in the revelation process.
Determine both the relationship of risks in the planning of the audit and factors that influence those risks. Speculate on which type of risk creates the most uncertainty for the auditor, and recommend at least two ways to plan the audit to mitigate those risks. Provide specific examples.
Auditors need to examine risk zones and then plan the audit grounded on those hazards. If I have recognized a high risk zone, I would want to design a greater number of tests in respective areas, as equated to low risk zones. If accounts receivable is more than what is the ordinary range when considering at a cross sectional analysis, I would plan extra tests on accounts receivables to regulate if the balance is correct. Risks are directly connected to the audit plan – the level of risk directors the audit plan. As required by the PCAOB, due to SOX, auditors must get a sufficient understanding of internal control in the corporation, to recognize the main types of misstatements that must be extant. This is based upon types of reins used by type of industry, management, and size of the company grounded on uncultured receipts. In my opinion, the accounts receivables account creates the biggest risk, which would be the risk of overstatement. In large companies, accounts receivables can be tremendously difficult to authenticate, even with adequate testing events. With accounts payables, the account balances on large accounts can be confirmed finished the creditor. Auditors cannot verify accounts receivables accounts with customers, for various reasons. The auditor therefore has to rely on internal source documents to verify most accounts receivables transactions, and external source documents are always generally chosen. The problem is that internal source documents and transactions relating to accounts receivables can be easily worked. This is why we see so many dishonesties from large companies involving accounts receivables.
Imagine that you are a senior auditor, and your firm has been selected to audit a medium-sized sporting goods company with one single location. Describe the four phases of an audit and discuss the key factors that would help you determine how to plan the audit for this company. Provide specific examples.
The four phases of an audit comprise (1) accepting the audit engagement, (2) planning the audit, (3) performing the audit tests, and (4) reporting the audit findings. In the first step, the client and the firm have a vibrant thoughtful of what is anticipated through the audit, the related risks, and the honesty of administration is also recognized. In the second step, they plan their audit. We have to advance an thoughtful of the client’s productiveness and business atmosphere, which in this scenario, is the sporting things industry. We decide the regulatory bodies that must be conformed to by the firm based upon the kind of industry, and we advance a considerate of who the top contestants are in the respective industry, which can be strong-minded comparatively effortlessly by probing through a market share map for the industry. We would also need to gain an thoughtful of the corporation’s bankrolling cycle and operations cycle at this stage. In the third step, we achieve our tests. This comprises our analytical tests, our functional tests, and our supplementary analysis. We regulate if any areas have been misstated. We investigate our financial statements to guarantee that the declarations have been met. In the final step, we subject our opinion, and if we have to issue a qualified opinion, we state why. We make sure that the audit findings are convincing based upon our audit testing accomplished in the preceding step. I would strategy the audit for this decent goods company grounded on internal control. We only have one setting to work with, and this is a medium sized corporation. The level of internal control set by management is overriding in this case. If the internal control is robust, probabilities of misstatement are small. If the internal control is scrawny with areas sheathing, the audit risk would be painstaking high in those lagging areas. This would have given management the chance to misstate accounts or enter fraudulent transactions without being noticed by any senior management.