Issues in Auditing and Professional Practice free essay sample

We all consider different risks are less offensive than others and some are willing to take chances others would not even contemplate. Is this a question of morality or being smart? Is smartness driven by greed or is it a matter of testing one’s ability to soar and succeed and seeing how much they can get away with without being caught? I would argue that it has to be driven by some form of self gain or the motivation would be lost. Certainly this was the case in the Enron scandal. Ethics would say that as long as no harm is done to others then it is fine. Law would look further to see if the â€Å"intention† behind an action is to deceive even if no harm was done up until that point. Therefore, the law is there to curb the â€Å"temptation† for doing things that could possibly cause harm to others. We will write a custom essay sample on Issues in Auditing and Professional Practice or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Most laws are reactive rather than proactive as they are only established when there’s a breakdown in a presumed ethic or social responsibility. Section 404 of the Sarbanes-Oxley Act 2002 is a section that helps detect and prevent fraud from happening; however it has taken several major company collapses and losses to thousands of investors for this law to eventuate. This section is not an end to all fraud however as it has been recognised that â€Å"governments cannot legislated against corporate collapses or for corporate integrity† as the former ASIC chairman David Knott said in the article published by The Australian Financial Review on July 18th 2002. As efficient as section 404 may now appear to be, it would be ineffective if the methodologies change. For example, the introductions of CDOs and their complexities appeared reasonable at first. It wasn’t until all the flow-on effects of years of subprime lending that the effect of such dealings showed its flaws. As the status quo changed and accounting rules changed to fair value accounting the basis of the structure upon which the idea of CDOs was built on changed resulting in endless consequences. The â€Å"intentions† of such schemes as the world came to know was greed – a trait that does not sit well with ethics. Now the world is paying the price. Is this judgement day for the world to stand up and say â€Å"no† to greed and â€Å"yes† to ethics? Is this an outcry for more regulation or for ethics? Alas, we have short memories and as we know, unless there’s a policeman behind us we will break the rules. This is why the need for Audit Committees and independent Non-Executive Directors has appeared in the financial world. The opportunist in us prevents us from being totally ethical beings as unfortunate as it may be. We are all ethical when conditions are favourable to us, only a few people stay morally tuned when going through tough times and those are the people who have stuck to their beliefs, whether those beliefs are moral or economic beliefs. I have found no greater satisfaction than achieving success through honest dealing and strict adherence to the view that, for you to gain, those you deal with should gain as well†. Alan Greenspan (American economist and former chairman of the Federal Reserve of the United States from 1987 to 2006). Question 1: (Chapter 10 â€Å"Australian Wheat Board†, p135 Question 4) Discuss the lessons to be learnt from the AWB s candal. The Australian Wheat Board (AWB) case illustrates how, despite the introduction of laws such as CLERP 9 (2004) to combat corporate fraud, there still exist opportunities for fraud to occur and executives who take those chances. There are lessons to be learned from this case relating to the culture in which management operated, and the importance of risk management and internal controls. The timeline shown in Appendix 1 lists the chronology of events concerning and surrounding the AWB since the first Gulf war in Iraq in 1990 through to its exposure in 2006. This provides the key background details about the case. The consequences of the AWB fraud have been vast. According to Commissioner Terence Cole who headed the inquiry to determine if the â€Å"AWB or its officers broke any Australian Laws† reported the following consequences: (Johnson R. 2007, p126-127) -The AWB lost its reputation -Shareholders lost half the value of their investment through a decline in share prices during 2006 placing the company in a vulnerable state to a takeover -Trade with Iraq worth over AUD$500 million has been forfeited -Many senior executives have resigned Some companies will not deal with the AWB -Some wheat farmers are unwilling to trade with AWB in Australia and overseas -Australia’s reputation in international trade has been tarnished -The Iraqi Grains Board suspended purchases of wheat from the AWB, Iraq being one of AWB’s top three export markets -The AWB lost its right to veto any application by competitors to export bulk whea t supplies From a legal point of view Professor Ramsay, a corporate law professor at the University of Melbourne, stated that the directors, including non-executive directors in the audit and risk committees breached their duty of care under Section 180 of the Corporations Act (Refer Appendix 2) which requires company officers to act with â€Å"care and diligence†. Section 181 also requires that these duties be discharged in â€Å"good faith and for a proper purpose†. In the 2003, 2004 and 2005 Annual Report of the AWB it is stated that one of the audit committee’s roles is â€Å"to monitor policies and procedures to ensure compliance with statutory and legal, financial and corporate governance responsibilities†. It would appear that the audit committee in this case did not perform its corporate governance responsibilities very well particularly when directors with certain skills and industry knowledge should have known or ought to have known certain facts, in this case that the trucking fees were not genuine and were likely to be contraventions of the United Nations sanctions on Trade with Iraq.