Overview of SHARP Limited’s Work Process
SHARP limited is a non-listed corporation which supplies office equipment’s to various clients in IRELAND. The covid 19 pandemic has significant impact on the overall work procedure of the company and the company has offered their clients discounts to reduce their inventory levels. From the point of view of an auditor, of SBM, it can be noted that there are various risks associated with the work process of the company which the company is understand before beginning audit planning and engagement. The analysis has found that the materiality of the company is 1 percent of its revenue and further, it has been also found that the company has legal issues related to its materials. The company has not increased its audit fees as well as does not adhere to the International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants. The following section of the report will discuss and analyze the five fundamental principles, that professional accountants are required to comply with, as discussed in the IESBA’s Code of Ethics for Professional Accountants, providing an example of each principle. Further the report will also explain six potential ethical issues raised in relation to SHARP as well as state the measures that should be implemented by your firm in order to mitigate any threats which might arise with the ongoing operations of the company.
Based on the concerns of the ethics partner, it is certain that SHARP professional accountants should comply with the following five fundamental principles as discussed in IESBA Code of Ethics.
This principle of the code of ethics (subsection 111 R111.1 to R111.3) denotes that a professional accountant must always possess professional relation with its clients as well as should always communicate honestly with its clients.
For instance, if an accountant is working for SHARP company, they should always communicate information’s from the reports to the stakeholders in a very efficient manner to ensure that that does not contain any false or misleading information’s (Mafi 2019). It is also certain that the statement made by the accountant of SHARP should not contain an omission of important information’s. The accountant further does not compromise any professional situations for their personal favor since the same can impact the operations of SHARP negatively.
ISA 200 denotes that, depending on the circumstances in which the auditor acts, the auditor is obligated by one or more ethical guidelines. As a result, the conduct of an audit is guided by the ethical code, which includes adherence to quality control procedures. ISA 200 covers the general obligations of the independent auditor while performing an audit of financial statements in compliance with ISAs.
For instance, if in ABC company, an audit has been done in line with ISAs is predicated on management and, when applicable, individuals responsible with governance acknowledging certain obligations that are critical to the audit’s success. The financial statement auditing does not absolve management even those in control of oversight of their duties.
If the auditor has a directly and indirectly financial interest in the company, or if the client is owed a large fee, there is a risk of self-interest. If the auditor is reviewing his own performance or the work of others in the same business, there is a risk of self-review. If the auditor is active in promoting the client to the extent that their neutrality is jeopardized, there is an advocacy risk.
Risks Associated with SHARP Limited’s Work Process
For instance, if within ABC company, an auditor is too connected to or acquainted with workers, officials, or shareholders of the client company, there is a risk of familiarity. If the accountant is threatened by administration or its shareholders to the degree that they are unable to function objectively, there is an intimidation risk.
This principle (subsection R112.1 to R112.2) denotes three specialty which must be followed by an accountant. These specialties are given below
Professional accountant must always possess professional relation with its clients as well as should always communicate honestly with its clients.
Professional accountant should not involve into something which can create conflict of interest.
Professional accountant should not allow biases or undue influences of others into his duty.
The influential behavior can significantly impact the overall organizational behavior as well as other associated factors of the organization (Rikhardsson, Singh and Best 2019).
For instance, the accountant working within SHARP should not involve himself within any conflict which can impact the reputation and work environment of the organization negatively. Further, if in any circumstances the accountant gets influenced by other biases, they should only judge the situation as per their professional judgements.
Social pressure, personal relationships, self-interest, self-review and familiarity were the five most common risks to objectivity. The top three important objectivity related challenges to impartiality, according to an internal auditor, are societal pressure, economic interest, as well as personal relationships. Empirical data is necessary to raise awareness among individual internal audit function along with their clients about the conditions that may compromise the objectivity of internal audit function. Independent internal auditors must be able to handle unbiased threats in order to maintain trust in their services as independent standards have been developed, so although stakeholders, particularly management, can confront such threats by putting in place safeguards are in place that the intent of having an internal audit function as a neutralized system.
For instance, an auditor of ABC company has an explicitly or implicitly interest in a business, or if the customer is owed a large fee, there is a risk of self-interest. If the auditor is reviewing his own work or the work of others in the same business, there is a risk of self-review.
The accountant should always continue his duty in an organization after maintaining sufficient amount of professional knowledge and skills under subsection R113.1 to R113.3. Further, it has been also evident that an accountant should always understand their quality of service that they are giving towards the client based on the current organizational environment. The accountant should always ensure to work diligently and also ensure that they are providing service to their clients on the basis of the current legislations and services (Müller etal 2020). The professional accountant should also ensure to provide professional service with regards to the professional standards and codes of practice. Further, the accountant should also exercise sound knowledge about the code of practice and accompany diligence within SHARP to ensure that the company is operating under proper supervision. It is also the duty of the accountant to aware them about organization’s limitations. The professional competence and due care threat is associated with client not being able to maintain professional competence in terms of business development and professional environment. This can be addressed by the application of IAS 200 through application of A20 para 13c of which states that there should be necessary support for auditor’s report and opinion to ensure that the audit evidence corroborates management’s assertions.
The Five Fundamental Principles of the IESBA’s Code of Ethics
For instance, if the accountant working for SHARP does not have sufficient number of skills and knowledge to manage their inventory accounts and material accounts, the company will have significant issues managing its inventory levels.
This principle ((subsection R114.1 to R114.2) denotes that the accountant should always maintain the confidentiality within the organizations working environment and should ensure that he is maintaining business relations ethically and is not disclosing any amount of information’s to third parties. If the accountant has sufficient rights and authorities to disclose information’s towards its clients, he should always disclose the information otherwise confidentiality should be always maintained within the work environment. The accountant should always ensure not to violate any standards and code and should not disclose confidential information that can provide him with personal advantage or benefits (Brunsson and Rahnert 2021). Further, the accountant should also ensure that they are not disclosing and information’s to other firms without authorities. If SHARP shares any incomplete information’s during the accounting process, the accountant should always ask the directors for complete information related to the process. The relevant threats to confidentiality can be identified with any form of malicious insider attack, encryption cracking and eavesdropping attacks. The same can be addressed with the use of IAS 200 by safeguarding sources of information through appropriate financial reporting framework and conducting internal audit prevent client’s confidential interest associated with personal benefit.
For instance, if the director of SHARP share any information’s associated with the internal operations of the company, the accountant should not disclose the information’s to outsiders and should always maintain the confidentiality within the environment
This principal of the code of denotes (subsection R115.1 to R115.2 A1) that the accountant should always comply with relevant number of laws related to their accounting procedure as well as should also always avoid any number of actions that can impact their profession negatively. Further, if there are any marketing activities that is impacting the overall reputation of the company, the accountant should always ensure to being truthful and not bring his reputation in inappropriate situation.
SHARP has been operating with various ethical issues that needs to be addressed in order to efficiently evaluate the situation. Following section of the analysis will denote six potential legal issues that SHARP has been facing as well as will also denote the measures that the firm can implement to reduce these issues significantly. The relevant threats to professional behaviour may comprise of self-interest threat, self-review threat, advocacy threat, intimidation threat and advocacy threat. The relevant application of IAS 200 can be seen with reducing the risks associated with professional skepticism and judgements.
For instance, if directors of SHARP discloses any information that is not clear and does not contain enough information for accounting, the accountant can always ask for the same to clarify the information.
The firm has significant amount of materiality issues and it has been detected from the case that the materiality threshold of the company is above the limit. In this instance, there are various material misstatement occurring within the financial statement of the company which is making the overall work environment of the company much worse. Further, it can be also noted that with the amount of materiality issues in the financial statement of SHARP, the auditor cannot provide unqualified audit opinion (Masiulevi?ius and Lakis 2018).
Potential Ethical Issues Raised in Relation to SHARP
To solve the situation, the auditor and accountant should work together to verify each and every financial transaction of SHARP so that they can be assure that the financial record is without any errors. Further, the auditor will also have to acquire information’s related to the financials that can impact the audit process of the company. This will ensure that there are no omission or misstatement that can impact the financial statement of the company negatively. The relevant threats to materiality issue for the company can be noted in terms of understanding the subjectivity in materiality assessment and interrelationship of sustainability issue. This can be solved by the application of ISA 200 through proper investigation of omission and assessing whether that omission is material in nature. The idea of materiality is used to both the planning and execution of the audit, as well as the evaluation of the impact of identified misstatements on the financial statements and the accompanying auditor’s report.
The case has revealed that SHARP is not providing its auditors with sufficient amount of payment and it has been also noted that the audit manager of the company is not been paid for last two years. If the company fails to pay its auditors properly, it will not be able to have unqualified audit opinion from the auditor hence the audit quality of SHARP will be significantly affected (Nekhili, Javed and Chtioui 2018).
To solve the problem, the board should provide proper number of payments towards their partners and act ethically with the managers and associates which will allow the firm to grow significantly. The inadequate fees to the audit partners may lead to performing lack of duties which may further lead to risk of misstatement. The application of ISA 200 will ensure that sufficient payment is made to the audit partners and their work according to their best interest, thereby ensuring utmost compliance to the duties.
The analysis has noted that SHARP does not have compliance with IESBA which can significantly impact the audit quality and accuracy of reporting. Without following proper code of conduct, the company cannot be able to work ethically within the industry. Without following the code, the company will have issues related to corporate espionage or other ethical issues (IESBA 2018).
To solve the situation, the company will have to put mandatory disclosure requirements as well as will have to adhere to the IESBA. Further, the company will have to ensure to impose penalty if there are any amount of violation affecting the company ethics.
The current situation of the company could significantly affect the overall number of risks faced by the company. Corporate espionage denotes stealing of information’s from the corporation and provide the same to the competition of the company. Further, if the company constitutes of corporate espionage, ethical issues will arise and the same will financially decline the position of the company.
To prevent corporate espionage present within SHARP, the company should protect its information’s and conduct frequent risk assessment which will ensure that the company does not have potential attackers. Corporate espionage is a very real reality that is extremely different from what one may think. It is a source of concern for businesses. Knowing a competitor’s future product line, offer price, and any other sensitive information might provide a competition a competitive advantage if they aren’t detected. Backups, computer systems upgrades, and many other security patches should all be followed, documented, checked, and evaluated to ensure that they are up to date.
Measures to Mitigate Threats Arising from SHARP’s Ongoing Operations
The current condition of the company is not very much ethical and the company must ensure that whistleblowing is not within the environment of the company. Further, the company should also penalize if it finds that its employees are whistleblowing. To prevent whistleblowing within the organization, the company should ensure to implement a whistleblowing policy as well as should communicate with employees on a regular basis (Latan, Chiappetta Jabbour and Lopes de Sousa Jabbour 2019). Based on the views of the employees, the company can further take corrective actions against the whistleblowing.
The implementation of technology into all aspects of SHARP’s operations has profoundly changed how it operates and provides value. Employing these innovations without a clear plan or ongoing attention to precision, durability, and protection, on the other hand, can backfire and either slow or destroy a firm. Shareholders as well as other stakeholders may sue a firm for deceiving them in making investment choices if a financial statement contains errors. Such errors jeopardize the integrity of a company’s ESG indicators, which is a major investor issue.
The advancements in technology security capacity, which fall under another umbrella as confidentiality agreements, raise privacy issues for both clients and staff. Employers may now monitor employee activities on their laptops as well as other company-provided devices, because while electronic monitoring is intended to assure efficiency and production, it frequently veers perilously close to invasion of privacy (Pasquier etal 2018). Internal control systems are supposed to detect and mitigate data integrity and security concerns, but what if anything goes wrong? Regulators require precise ESG (environmental, social, and governance) indicators, customers expect sensitive information to be protected, and investors anticipate thorough reporting numbers.
Conclusion
On a concluding note, this analysis has denoted the five fundamental principles which an accountant should comply with in order to ethically work within an organization. The analysis also denotes that the accountant should always maintain confidentiality and possess due diligence within their work process which will allow them to work efficiently without any number of implications related to codes of practice. Further, it has been also noted in the principals that an accountant should always ensure to work professionally and should always remain unbiased. Further, the analysis has also identified the legal issues that will significantly impact the operations of SHARP company. Afterwards, the analysis has revealed various ethics related issues present within the company which can significantly affect the audit quality of the company negatively. This includes materiality issues, insufficient payment to audit partners, no compliance with International Ethics Standards Board for Accountants (IESBA), legal dispute issue or corporate espionage, whistleblowing and technology and privacy concerns. To solve the issue, the company will have to provide proper amount of remuneration to its auditors and will have to ensure that it is following the IESBA and its associated policies.
References
Brunsson, K. and Rahnert, K., 2021. Competition and auditing: esteemed but incompatible ideas. Competition: What It Is and Why It Happens, p.131.
IESBA, 2018. International Ethics Standards Board for Accountants (IESBA), International Code of Ethics for Professional Accountants.
Latan, H., Chiappetta Jabbour, C.J. and Lopes de Sousa Jabbour, A.B., 2019. ‘Whistleblowing triangle’: Framework and empirical evidence. Journal of Business Ethics, 160(1), pp.189-204.
Mafi, S.L., 2019. Auditing fundamentals. In Quality Auditing in Construction Projects (pp. 120-132). Routledge.
Masiulevi?ius, A. and Lakis, V., 2018. Differentiation of performance materiality in audit based on business needs. Entrepreneurship and sustainability issues, 6(1), pp.115-124.
Müller, W., Kuznietsova, A., Karpachova, ?., Khrystoforova, O. and Sulyma, M., 2020. Accounting and auditing according to international standards as a management function.
Nekhili, M., Javed, F. and Chtioui, T., 2018. Gender?diverse audit partners and audit fee premium: The case of mandatory joint audit. International Journal of Auditing, 22(3), pp.486-502.
Pasquier, T., Singh, J., Powles, J., Eyers, D., Seltzer, M. and Bacon, J., 2018. Data provenance to audit compliance with privacy policy in the Internet of Things. Personal and Ubiquitous Computing, 22(2), pp.333-344.
Rikhardsson, P., Singh, K. and Best, P., 2019. Exploring continuous auditing solutions and internal auditing: A research note. Accounting & Management Information Systems/Contabilitate Si Informatica De Gestiune, 18(4).
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
