INTRODUCTION:THE ETHICS IN AUDITING.

Disciplines like accounting and auditing are more technical compared to ethics,
however it requires to select, train well and not subject them to more temptation than
they can cope with individuals and bound them with the system to complaints and
disciplinary process to deal with errant behavior that comes to the attention of
professional bodies.

Ethics of accountants and auditors is focused on discovering how to maximize

compliance with generally accepted professional conduct however the crisis of public
confidence in the accounting profession arising from unlawful events is perceived a
threat not only to the business of auditors but to the business itself.

Ethics in auditing does involve the conduct of auditors. Any serious attempt to assess
this conduct must take account of the nature and purpose of auditing and economic and
social functions it is intended to serve. The ethics of auditing involves the critique of
content of legal and professional norms and the regulatory system with in which they
feature including the adequacy of the legal frame works in which accounting and
auditing take place.

It is helpful to classify the ethical issues that arise in relation to auditing by

distinguishing three spheres of activity

1- Practice of auditors
2- Management culture of audit firms
3- The setting of auditing standards and laws

Auditors ought to carry out their standard procedures carefully diligently and punctually
in accordance with their instruction and appropriate auditing standards and procedures.
Hence morality is all about considering other people not calculating once own gain and
losses. Yet there is also a powerful moral tradition that endorses the idea of people
having duties to themselves which may be balanced against duties to others.

For practicing auditors there are possible challenges like tasks becoming beyond time
and expertise and also hard pressure of self interest. These calculations may turn out to
be in conflict more evidently moral or ethical questions: consideration of fairness to
other members of the team, obligation to employers, duties to clients, and perhaps
concern for other groups who may relay on the audit for one reason or another. In every
system morality has place for legitimate self interest. Even if we put self interest to one
side, similar problems arise when we consider the interest of other people and try to
think how to approach employees’ duties to their colleagues, their employers and the
public.

Individual auditors should therefore, work as hard as they can, in accordance with the
instructions, and they should always make full report to their superiors of any problem
they encounter. At times there arises a pressure brought to bear on the auditor not to
draw attention to irregularities or problems that have emerged in the course of auditing
,pressure that is often related to related to real or perceived threat to the future
commercial relationship between the auditee and the auditor.

Ethics according to the Deontologist, is a matter of understanding and following certain

general imperatives or rules, such as the ten commandments: ‘work hard’,’ tell truth’
and ‘be kind’ are examples of such moral imperatives. Consequentialism on the other
hand is the theory that act is right or wrong depending on consequences for all those
affected by the action, including the agent in question(mill 1910(1861)).It is evident that
allowing people to pick and choose between rules and consequences opens the way for
self-serving choices are determined by self-interest of the particular agent. This is
central to auditing ethics and regulation, as it is to ethics in general(see
Campbell,chapter 5;Tweedie 1988).One attempted compromise between deontology
and consequentialism,a compromise that seeks to avoid the twin problems of partiality
and insensitivity ,is Rule-cosequentialism. According to rule-consequentializm
individuals ought to follow pre-established moral rules when making particular
decisions, but the rules themselves should be determined by consequentialist moral
reasoning(Hare 1981;Smart &Williams 1973).

Thus , in case of hard pressed auditors ,it would appear that they ought to take a
deontological or rule morality approach to their work related moral choices where as
those who set the rules within or for the organization might be expected to take more
consequentialist view, at least when making the rules. However, it is defining feature of
morality –at least with in the western tradition, with it’s stress on individual autonomy
(Kant-1953).It is therefore general feature of ethics that no one can entirely excuse
themselves by saying that they were just following the rules or obeying a higher
authority or doing what everyone else is doing. Ethics begins and (some would hold)
ends with individual responsibility. It follows that all accountants and auditors, even
those with limited experience and seniority, have an obligation to take critical attitude
to their own and their colleague’ conduct and to the rules and procedures that define
and govern their professional practice.

Provided awareness of rules and rationales, some accounting procedures are purely
computational while others involve judgments which are far from mechanical. When
this is the case the categorization of financial transactions requires transparency and
consistency so that the process involved can be duplicated. It is then as much the
consistency of rule- application as the as the content of the rules themselves which
ensures the validity of the process and the comparison that’s derived from it .The ethics
of rule interpretation and rule following here are functions of the value of particular
accounting and auditing system. The violation of these rules is then both accounting and
moral failure.

Not all departures from ordinary accounting standards are due to incompetence or lack
of awareness of nature of the process. Auditee’s interest is to attract investment and
auditor’s interest is to collude with their source of fee. This fact brings to light the
importance of rule for ‘Auditor independence’-which deprive auditors from having
financial interest and non-audit service on the auditee.

Audit firms have also the responsibility to provide support and guidance for individual
auditors in carrying out their tasks and working with auditees. Traditionally rules
establishing accounting and auditing independence have their origin in professional
bodies .But there come the need for broader view when professional bodies benefit the
auditing profession at the expense of public interest and on count of this ‘moral hazard’
accounting and auditing standards and regulation of the auditing process have
increasing been shared between professional bodies and governments intent on shoring
up the public’s trust in the professional conduct of auditors.

The brief overview of the complexities that arise in considering what constitutes an
ethical audit does something to explain the scope and methodology of this book.
Through 4 approaches it summarizes the very disparate themes arising out of the book
and cautions against both compliancy and hasty application of symbolic regulatory
changes but the objective is not to provide ethical primer for auditors.
Name of group members

Bisrat Berhanu
Hamelmal Azene
Tekalegn Tsega
Eyerusalem Assefa
Adanech Yeheyis
Nolawit Tamirat