Half Full or Half Empty

Bill is facing an ethical dilemma due to his engagement partner’s inappropriate behaviour in preparing the working inventory documentation. The information is no longer accurate as Greg has overlooked using the updated figures from Bill and Bill’s measurements presented a discrepancy of 10% between what he observed and the client’s book value. Bill has also discovered that this is not the first time this discrepancy has been discovered. At a previous audit carried out by government officials, the same discrepancy was highlighted but again, not reflected in the client’s documentation. Bill faces several ethical issues here, specifically with his code of conduct from here onwards. If Bill fails to act, his integrity, objectivity and professional judgement could be called into question. Also, as an auditor, he is accountable to act in the interest of the user of the information (not specifically the client). As an auditor, he should comply with relevant professional ethical requirements relating to this audit engagement. As stated CAS/ISA 200.24-25 requires auditors to obtain enough evidence to justify opinions, the information has to be reliable and relevant (not just sufficient). He should obtain reasonable assurance that the financial statement taken as a whole is free from material misstatement, whether due to fraud or error. Bill also needs to demonstrate competence, objectivity and due professional care in this Operational Audit. Greg is accountable for the documentation he has signed off and by behaving in the manner he has, there is a conflict of interest in his work and as such he has not acted as an independent party. Greg should not have signed off on the work without the working papers from Bill.
Bill should evaluate how he needs to conduct himself by reviewing the Canadian Auditing Standards (CAS) and by using one of the established frameworks for dealing with ethical dilemmas, such as Giving Voice to Values (GVV) or the six-step approach. The GVV method is a more recently developed framework and I recommend that Bill use this framework to resolve this ethical dilemma. He should follow through all five steps and ensure to perform a comprehensive stakeholder analysis. He should proceed through each step of the framework objectively without assumption. After developing a plan of action Bill should first approach Greg and advise him that he believes a conflict of interest exists in the work which was signed off on. He should advise Greg that he believes should include Bill’s work on the measurements of the grain elevator and of his discovery that a government inspector had also measured lower than the book amount on a previous occasion. Also, Bill should advise Greg that they should not withhold information from the client as this could cause potential business impact. The client’s business could be affected negatively. And by telling the client, they could potentially improve or better quality through taking measure to improve. If Greg agrees, Bill should allow sufficient time for the work to be rectified. If after the initial discussion the issue is still not resolved, then Bill should escalate the issue and approach an appropriate member of senior management within his own firm. He should provide full disclosure of the issue and highlight the seriousness and unethical nature of the matter. He should then proceed with informing an appropriate member of senior management within the client’s firm who was identified in the stakeholder analysis, of the introduction of Audit Risk due to the methods carried out by the engagement partner. He should also advise client of the potential consequences and business risk involved with using the work as signed off by Greg. He should propose as he originally did that an adjustment be made, the signed off documentation be recalled and his working papers be added to the final documentation before final sign-off by an external, independent third party intermediary.