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In this paper, you are asked to discuss the qualities of auditors that are essential to raising profesional scepticism. You are supposed to response answer together with a case.
qualities of auditors that are essential to raising profesional scepticism
Response Answer together with a case
Independence in the field accounting has been the heart of every aspect determining the relationships that people will have to the decisions that people will take whenever faced in different scenarios. As a profession, accounting seeks to instill confidence to the public by showing that what has been stated is the true financial position thus enabling them to make decision appropriately. Any doubts need to be verified to assure other stakeholders that the position of an institution is as it is and there does not exist any doubts that would influence the relationship between any stakeholders whether they are the employees, investors of other support institutions such as the financiers (Church et al 2014).
1 a) Mary Frost’s Company Has A Significant Business Relationship With TS Company
In the case of TS company, learning that Mary Frost is the wife to Tim Frost the audit partner at TS Company would influence the decision I make towards the issuing a loan. The existence of doubt and the fact that they have a personal relationship means that there is a conflict of interests, which is both against the code of conduct in accounting and as stated in laws such as Sarbanes-Oxley. Accounting ethics code of conduct also limits the professionals from engaging in situations where they may have a conflict of interest. TS institution is one of those instances where concerns on conflict exist.
The existence of the U.S Securities and Exchange Commission laws that limits the business relationship such the one documented in the case of TS Company acts as a rule of independence and has also been restated in the Sarbanes-Oxley Act Rule 70 (U.S Securities and Exchange Commission, 2016). The fact that Tim’s wife has a significant business relationship only act to deter him from having participated in the first place in the auditing of TS Company. There should have been a prior identification of the business relationship to show that Tim should not have engaged in the auditing process as he is bound to act in the interests of his wife rather than the true situation of the TS Company. As such, I would not extend the loan (Illinois Business, 2012).
1b) Change and The Business Relationship between Mary’s Company and TS Company Was Not Material
Even if the situation were to change, (that both Tim and Mary are not married) TS Company is yet to show the true financial position and the existence of doubts only acts to increase my doubts. To the public, such doubts are grounds to deciding not to make a decision that would favor the company. TS needs to show the ability to finance all its projects and by taking a loan, it has to show its ability to repay. This is just the standard procedure and as per the audit report, TS is not able to repay the loan considering its cash flow uncertainties (Church et al. 2014).
1c) Associate This Situation to the Analogy between Auditors and Baseball Umpires?