Reference no: EM131469941

Group Case Study Assignment - Auditing hidden agendas

Background information:

All members of the accounting profession, regardless of their role, are required to comply with the fundamental principles contained in APES 110 Code of Ethics for Professional Accountants. The first principle, integrity, requires members to be straightforward and honest in professional and business relationships. It is reasonable, and expected, that an audit committee will scrutinise key financial risks and the risk management processes, particularly in a dramatically changed business-lending environment. It is the responsibility of the audit committee, rather than the CEO, to determine the need to review future loan compliance reports before they are provided to lenders.

Dilemma:

You are a member of an audit committee of a company that has experienced some volatility as a result of the recent financial crisis. You have just received the agenda for the first meeting in 2009 and, much to your surprise, there are no agenda items in relation to any impact the financial crisis may have had on your company. You are particularly concerned that the company may be at risk of default on some debt covenants. In addition, the scheduled quarterly compliance audit on the loan portfolio, which is required as part of the performance reporting to lenders, is not included.

You approach the chair of the audit committee and seek an explanation as to why these agenda items do not appear. The chair advises that he has raised the issue with the CEO and has had assurances that there are no matters that need to be discussed by the committee in relation to the current financial crisis. The CEO has also advised that the committee no longer needs to sign off on the loan compliance audits as these audits are at the request of the debt providers and not the committee.

You remain unconvinced by this assurance and are also concerned that the debt providers will assume the loan compliance audits are reviewed by the audit committee in accordance with past practice. You are also aware that the continuing support of the company's lenders is dependent on a favourable compliance audit.

Given your knowledge of the debt portfolio and the company's current performance, you are concerned that some figures may have been ‘massaged'.

Source: Sexton, T 2009, ‘Auditing Hidden Agendas', InTheBlack, March, p. 63.

Required:

Discuss the purpose of APES 110 Code of Ethics for Professional Accountants, particularly in relation to the requirement for professional accountants to demonstrate integrity. Then, using the steps outlined in the Laura Nash decision making model (model is on Moodle), explain how you would ethically approach the situation outlined above.

This assignment is to be completed in groups and submitted on Moodle by 20 December at 11.55pm. Students should prepare the assignment as an essay with a clear introduction and conclusion. All sources should be referenced using the style prescribed in APA 6th edition. All work should be the students own and any plagiarism will result in a nil grade and a notice being sent to the Academic Dean. Word limit should be no more than 1,000 words, a margin or 10% more or less than 1,000 words is permissible.

LAURA NASH'S MODEL OF ETHICAL DECISION MAKING TWELVE IMPORTANT QUESTIONS

1. Have you defined the problem accurately?

2. How would you define the problem if you stood on the other side of the fence?

3. How did this situation occur in the first place?

4. To whom and to what do you give your loyalty as a person and as a member of the organisation?

5. What is your intention in making this decision?

6. How does this intention compare with the probable results?

7. Whom could your decision or action injure?

8. Can you discuss the problem with the affected parties before you make your decision?

9. Are you confident that your position will be as valid over a long period of time as it seems now?

10. Could you disclose without qualm your decision or action to your boss, your CEO, your family, society as a whole?

11. What is the symbolic potential of your action if understood? If misunderstood?

12. Under what conditions would you allow exceptions to your stand?