Business Research and Ethical Issues in Independent Auditing
Te’ Portia Sibley
RES 351
John Gilpin
Jan, 22, 2014

The role of an auditor is to audit with integrity and objectivity. In an essay by Roger D. Martin, the role of an auditor should expand to assess the integrity and ethical values of their client as well. The purpose of this research was to bring to light how the auditor-client relationships could devolve into questionable behaviors. This article is in response to the regulations of the Sarbanes-Oxley act of 2002, that an independent auditing firm be contracted to audit a company in compliance with the Generally Accepted Accounting Practices. Prior to the act, company management hired the auditing firm, negotiated the fee and could request the firm perform other services. The Sarbanes-Oxley Act requires that an audit committee of the company’s Board of Directors hire the auditing firm with restricted duties. The researcher concludes that an auditor could and should be trained to understand ethics and how it influences behavior. This is a tool auditors could use to assess the integrity and ethical values of clients and better understand the ethical infrastructure (organizational elements that contribute to an organizations ethical effectiveness) of an organization.
What unethical research behavior was involved?
The article discusses how auditors maintain integrity and fulfill their responsibilities independently. Auditors should be aware of risks when dealing with clients such as, economic incentives, being hired to perform non-auditing duties and being hired by clients as financial and accounting employees. Independent auditors should assess the effectiveness of an organizations internal controls. Do they ensure reliable financial reporting and are they in compliance with mandated laws and regulations? Ineffective internal controls can lead to fraud on financial statements. Especially, if the organization cultivates an environment that encourages unethical behaviors.
Who were the injured parties?
Unethical behavior of independent auditors and their clients affect public investors and shareholders. The purpose of the audit is to ensure that an organization is following accounting regulations. The SOX Act was implemented to protect the investors and shareholders of a company. It was enacted in response to the accounting scandals of companies like WorldCom, TYCO, Enron, Waste Management, etc.
How has the unethical behavior affected the organization, the individual, and society?
In the past, these unethical behaviors resulted in the dissolution of companies, prison sentences and fines, and many public investors and shareholders losing billions of dollars. Because companies were not following generally accepted accounting practices, financial document were falsified to show increased revenues that did not exist. Auditing firms were hired and given incentives to “cook the books” so to speak. Many organizational practices were overlooked and integrity was not questioned.
Following the fallout of the financial scandal, The Sarbanes-Oxley Act of 2002 was enacted to be an ethics scout on the financial district. Regulation were set in place to hold organizations responsible for any ethical missteps they may take. The act also, in a sense, relieves independent auditors from potential pressures from their clients to overlook certain behaviors. Auditors are regulated to provide only auditing duties and are not allowed to take any offers from their clients for employment outside of those duties.
How could the unethical behavior be avoided or resolved?
According to the research, independent auditors could prevent this behavior by incorporating training that reviews their responsibility to detect fraud. They also need to understand the ethical decision making process by examining the role of ethics in an organization, how behavior is influenced by ethical infrastructure and how it could change.
Auditors must assess the ethical characteristics of the organization. They would ask if a Code of Ethics exists and is it distributed among the employees. Establish if the company has a whistle –blowing program in place and how it works. Establish if there is company-wide ethics training and has there ever been an investigation of ethics. Assess how the company identifies an ethical issue and is there a risk management committee.
Auditors may also establish ethical behavior based on federal guidelines. Assess if the company has standards and procedures that reduce the chance of criminal misconduct. Assess if the company ensures compliance through monitoring applies consistent disciplinary procedures and in case of an offense, ensure steps are taken to prevent it in the future and modify the compliance.
These assessments will give an auditor some objective evidence of an organizations ethics system. An ethical auditor not only wants to maintain personal integrity and objectivity but, hope to see it in the clients they are charged to audit, as well. Martin, believes this training will arm auditors with better ability to deal with ethical situations with clients.

References
Martin, R. (2007). Through the Ethics Looking Glass: Another View of the World of Auditors and Ethics. Journal Of Business Ethics, 70(1), 5-14. doi:10.1007/s10551-006-9079-4