"Ethics" Please respond to the following:
• 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.
Personal opinion is that the mandatory code of ethics will play a significant role in having a positive influence on investor behavior and public confidence. However, the problem does not lie on the code of ethics for the company, but on the enforcement of this code. Therefore, investors will value firms that have code of ethics that are implemented rather than those that do not have the code or implementation of the same. Furthermore, public confidence will increase since people will have a positive attribution to the companies that have existing code of ethics.
• 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.
The code of conduct of the company plays an effective role in determining the progress achieved by the firm in the enforcement of guidelines and rules. The values and attitudes of the management team helps employees in understanding what is expected of them in the organization. While the code of ethics does not have the ability to prevent the development of the unethical behavior, it creates a chance to have a positive impact on the decisions that are made by employees. For example, when workers are aware that a given action results in the violation of the ethical code of conduct, they will give it a thought and probably not engage in executing the action.
Audit Planning" Please respond to the following:
• 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.
The risks have a direct relationship with the audit plan. The risk level helps in guiding the audit plan as per the requirement of the PCAOB since SOX auditors need to have a clear comprehension of the company’s internal control so that they can identity possible misstatements.
The biggest risk is the A/R account. The risk is associated with the overstatement. For example, in the large firms, it is impossible to verify the A/R even in the presence of adequate procedures for the testing. Account balances of A/P where the accounts are large can be easily be verified by the use of a creditor. A/R transactions are complex to verify since they can be manipulated easily.
The best way to mitigate risks is to plan to have a high number of tests in areas that are considered to be of high risk as compared to the ones that are of low risk. Another strategy is to have additional A/R tests that ascertain that the balance obtained is accurate.
• 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 audit phases are audit engagement acceptance, audit planning, audit tests, and report of the findings. Audit engagement acceptance involves having the auditor and client develop a common understanding of the expectations from the audit process and the associated risks. Audit planning involves getting a clear perspective of the business environment and industry of the client. Such includes the regulatory bodies that are involved. The audit test involves substantive tests, analytical tests, and further analysis that focus on areas that have misstatements and ensure that the assertions have been clearly met. The final step is ensuring that the findings of the audit are conclusive and writing the report.
The plan for the sporting goods company audit would be based on internal control. Internal control would help in having a clear perspective of what is expected to be gained from the entire process of audit. Such will ensure that it is possible to identify fraudulent transactions and misstated accounts.
