The deviation of auditors professional ethics in the modern business


A world-renowned accounting firm PricewaterhouseCoopers, Ernst & Young, KPMG and Deloitte & Touche has a "digital corruption" a lot of irregularities in 2006. China also has burst Guangdong Kelon and other companies to conceal the truth, provide false audit report, which is the result of accounting firms do evil. University of Colorado Financial trial Meter Center, The Chairman said that the financial statements of fraud led to sharp stock price fall. This is a real disaster. The financial scandals of the U.S. economy are caused by loss of more than 2 000 billion U.S. dollars. Director of the China Enterprise Confederation, said Zhang Yanning, not the cost of my honesty

The renewed optimism of credit also needs to look at 50 years, Bush said that "the United States is a strong economy. And it should be more higher business ethics standards.

Moral hazard is the fact that a party insulated from risk may behave differently from the way it would behave if it would be fully exposed to the risk. In insurance, moral hazard that occurs without conscious or malicious action is called morale hazard.

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Moral hazard is a special case of information asymmetry, a situation in which one party in a transaction has more information than another. The party that is insulated from risk generally has more information about its actions and intentions than the party paying for the negative consequences of the risk.


In the modern business world, the market turns to be hard. Some companies have the pressure from many aspects. They have to give a perfect report to the board. And they have to make the balanced sheet beautiful sometimes. Especially for the listed companies, they have to make more benefits for the investors. But sometimes their profits cannot meet the standard of the demand of the public. They have to seek the help from the third party. Sometimes they have the external auditors to turn the sheets beautiful. In this occasion, the ethnic of auditors turns to be very important. They have to be responsible for the public. This article is to research the deviation of auditors' professional ethics in the modern business. And some solutions will be given out during this research.

Conceptual framework of professional ethics

3.1 Moral hazard

Moral hazard is the fact that a party insulated from risk may behave differently from the way it would behave if it would be fully exposed to the risk. In insurance, moral hazard that occurs without conscious or malicious action is called morale hazard.

Moral hazard is a special case of information asymmetry, a situation in which one party in a transaction has more information than another. The party that is insulated from risk generally has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.

Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its doings, and therefore has a tendency to act less carefully than it alternately would, leaving another party to hold some responsibility for the consequences of those actions. For example, a person with insurance against automobile theft may be less cautious about locking his or her car, because the negative consequences of vehicle theft are (partially) the responsibility of the insurance company.

Moral hazard also arises in a principal-agent problem, where one party, called an agent, acts on behalf of another party, called the principal. The agent usually has more information about his or her actions or intentions than the principal does, because the principal usually cannot completely monitor the agent. The agent may have an incentive to act inappropriately (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned.

Financial bail-outs of lending institutions by governments, central banks or other institutions can encourage risky lending in the future, if those that take the risks come to believe that they will not have to carry the full burden of losses. Lending institutions need to take risks by making loans, and usually the most risky loans have the potential for making the highest return. So called "too big to fail" lending institutions can make risky loans that will pay handsomely if the investment turns out well but will be bailed out by the taxpayer if the investment turns out badly. Profit is privatized while risk is socialized.

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Politicians and regulators representing the taxpayer and voter may regulate financial institutions to lend money to specific voting blocks, special ethnicities, special interests, favored companies, and unionized businesses with favored unions, rather than regulate financial institutions to lend money in such a fashion as to reduce the risk the taxpayer will have to bail them out, particularly if the bailout is likely to happen after the next election.

Taxpayers, depositors, and other creditors have often had to shoulder at least part of the burden of risky financial decisions made by lending institutions. Of the nearly 100 banking crises that have occurred internationally during the last twenty-years, according to the World Bank, all were resolved by bail outs at taxpayer expense.

Moral hazard can also occur with borrowers. Borrowers may not act prudently (in the view of the lender) when they invest or spend funds recklessly. For example, credit card companies often limit the amount borrowers can spend using their cards, because without such limits those borrowers may spend borrowed funds recklessly, leading to default.

Securitization of mortgages in America was done in such a fashion that the people arranging the mortgage passed all the risk that the mortgage would fail to the next group down the line. With the present mortgage securitization system in America, many different debts of many different borrowers are piled together into a great big pool of debt, and then shares in the pool are sold to lots of creditors - which means that there is no one person responsible for verifying that any one particular loan is sound, that the assets securing that one particular loan are worth what they are supposed to be worth, that the borrower responsible for making payments on the loan can read and write, that he speaks the language that the papers that he signed were written in, that he was sufficiently sober when he signed them to remember signing them, or even that the paperwork exists and is in good order(Dembe, Allard E. and Boden, Leslie I. (2000). "Moral Hazard: A Question of Morality?" New Solutions 2000 10(3). 257-279).

Theory of moral hazard is to engage in economic activities in the largest limit. Degree of effectiveness of the promotion itself is not conducive to other people when you make action. It generally exist in the following circumstances: Due to uncertainty and incomplete, or limited the contract system to make responsible economic actors can not bear the entire loss (Or interests), and therefore they do not bear the full consequences of their actions; the same land does not enjoy all the benefits of action. Obviously, this definition includes a number of different external factors that may cause there is no equilibrium state results, or equilibrium even if there is no efficient

3.2 professional ethics

In recent years, due to accounting delinquency ratio increased annually, accounting professional ethics issue has aroused extensive concern. This paper first accounting professional ethics of the basic concept was clearly enunciated, then analysis of the current Accounting Professional Ethics Status: False Accounting Information, financial management, Duty crime is particularly prominent. Through the analysis of some real cases against accounting officers ethical reasons, both the accounting staff and external factors. Thereby strengthening the accounting professional ethics-building measures, such as : strengthening education, improve management, enhance skills, etc.

First, the management and technical levels (inherent, control, inspection) of the Although the risk of evil, but it affects only the micro-level events, Moreover, It has been found to overcome the system of norms and responses. The moral WindDangerous impact on society is a macro event, its adverse consequences are oftenSocial Credit would collapse situation, which affects the macro level.

But have not yet found a particularly effective governance program. Therefore, Audit risk, we must introduce moral hazard analysis variables are more review testing significance.

Second, the law itself is not complete. If the law is complete, in the face of any given case, any judge or any one subject educated people, can be clear and unequivocal in accordance with the law, there is no bias to push the break out of what is against the law, as well as break the law and what kind of punishment, and that Yao deterrent to this passive type of law enforcement will be fully effective. However, the facts are not the case. Because of the relative stability in the face of the numerous national and Japanese Crescent different social, unpredictable events will occur, would be unable to accurate summary of all possible violations. Therefore, if only the courts to law enforcement, then, on the one hand because it cannot all possible violations to make punishment, there will be insufficient to deter the results; the other hand, may lead to deter excessive, because the legislators will adopt a "broad-brush" approach, to a broad category of activities were all classified as prohibited acts as a proactive law enforcement supervision.

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Third, morality is bound by each person from the heart, it does not require human supervision, the cost is very low, and the morality play all the time role of the efficiency is very high. Therefore, the moral constraints on people more than the system is about beam. And this is more important, it is the audit risk due to the formation of an important variable Su. If you want to reduce audit risk, first of all should reduce the risk of moral hazard

To proceed, otherwise, no matter how perfect the design, how accurate audit of quasi - then, the program, the program will be because of moral hazard can not be created for worship Its proper role.

Fourth, certified public accountants of any technical approach taken should be in accordance with rely on professional ethics as a strong point, CPA Audit Quality is even more professional skills and professional ethics function. Audit Case There are some pieces of the problem is not entirely due to technical or procedural errors A result of the audit subject's daily behavior and work attitude sometimes into the

or the crux of the problem. So, people are concerned about audit techniques and Development of the procedure, but also started to pay attention audit subject's own behavior and The resulting audit of the main body of the ethical issues. However, the traditional audit.

Model can not describe because of the risk of unethical behavior, such as: business

Collusion with the audit subject of fraud, improperly issued the audit report; Audit

Of the main receiving bribery; audit subject in order to harm the economic interests of lower prices The same industry. Therefore, it is necessary to study the introduction of the audit risk of moral Wind Risk factors.

3.3 External audit risk

external audit risk factors include the independence of external audit bodies enough, the external audit staff ill-equipped business, external audit of the scientific method is not strong, external audit management systems. In order to reduce the risk of external audit, external audit should strengthen the legal system, guarantee the independence of external audit, external audit staff to improve the quality of the audit of the implementation of scientific and rational work processes, reduce risks and to correctly handle the relationship between economic efficiency and conduct a risk - oriented risk-based audit.

External audit risks include the inherent risks and control risks. The inherent risks is the assumption that has nothing to do with external accounting controls, the units being audited financial statements and the overall balance of the account of a business or the possibility of a major error, that is caused by the audit unit economic characteristics of business and accounting work itself the formation of the lack of audit risk. Some enterprises such as the lack of due attention to the accounting system, account system complex, reducing clarity of accounting information, reports, use of difficulty, cost, cost of lack of cost accounting concepts. Control risk refers to as a result of inadequate external control system被審å-®ä½perfect, weak external control behavior, not timely detection and correction of a business account or a major error in the formation of audit risk. Sometimes, even if the auditors audited units to confirm the external control system is unreasonable or out of control in key areas, the amendments proposed by the audit can really suitable for operating activities, but will also create a risk amendment.

First, the external audit risk causes

1. The independence of the external audit agency enough

External audit body is set up units in institutions, in the unit under the leadership of the responsible persons to work as a unit of service. Therefore, the independence of external audit as social audit, the audit process, inevitably affected the interests of the unit constraints. OIA staff faced with the unit leadership was among the leadership and the leadership of the relationship, as well as with various sections, the relationship between colleagues, people are not involved in the leadership of my colleagues is, non-directly related to also indirectly related to the audit process and conclusions will inevitably involve the interests of specific individuals, which inevitably affected the audit process for all categories of personnel interference.

2. External audit operations personnel ill-equipped

The quality of auditors is to determine the size of audit risk factors. The quality of the audit including those engaged in the audit of the policies and regulations need to level of expertise, experience, skills, audit professional ethics and work responsibilities.

Audit experience, the audit staff should have an important skill, the need for the audit practice of the accumulation of experience. China's external audit staff, many people only familiar with the financial and accounting operations, some auditors do not understand the business activities of this unit and external controls, audit limited experience. In addition, the external audit staff responsibilities and professional ethics is the impact of audit risk factors. Because of China's external guidelines for the work of norms and ethical standards still some gaps, and many external organs and personnel lack of occupational norms bound and guidance. In short, China's overall quality of the low OIA staff and directly affected the external audit work carried out by the depth and breadth. Faced with the complexity of today's OIA object and content development, external audit staff and powerful single force book, which will directly lead to the selection of audit risk.

3. External audit of the scientific method is not strong

China's system of external audit is the basis of the audit, with the external operation and management of environmental complicated models are not suited to carry out this audit external management audit of the needs, because it is overly dependent on the external management of enterprises controlled test, in itself a huge potential the risk of external audit generally use statistical sampling methods, as a result of the sample itself is based on a sample audit of the results of the review can be inferred from the general characteristics, therefore, between the samples and the overall form is bound to a certain degree of error, the formation of audit sampling risk. With the degree of information technology improved, the audited accounting information will be more and more errors and false accounting information doped them, and failed to investigate the possibility of also increasing. Although the survey sample is built on the solid foundation of mathematical theory, but its existence is to allow a certain degree of audit risk. Similarly, a large number of analytical review will also have associated risks, so that the composition of the contents of audit risk is more complicated.

4. External Audit management systems

External audit management system construction and implementation of external audit is the prerequisite and foundation. Sound and effective external management system to detect and control of enterprise economic activity occurring in a variety of errors and fraud. To ensure the quality of external audit, external audit organizations should establish a perfect quality control system, however, some audit institutions still lack of prior audit plan, a matter of auditing procedures and audit review of the reporting period; the audit working papers incomplete, generally only Records of audit matters, not the recording of audit staff that the correct audit matters, making the audit review, audit quality control no way; to coordinate the relationship between the audit report as a starting point to certain performance-based, qualitative ambiguous issues. More than the existence of the status quo, making the external audit quality assurance become an empty talk, let alone ward off risks.

Second, reduce the risk of external audit ways

1. Strengthen the external audit of the legal system

Improve and perfect the legal system for the audit of external audit is the basis of risk control measures. Audit norms, the audit staff code of conduct and guidelines, not only to control and reduce audit risk, but also to measure auditors liability standards. China's external audit late start compared with Western countries in the relevant system-building there are many imperfections. In order to adapt to the continuous development of modern external audit requirements, it is necessary to strengthen the audit work of legalization and standardization construction to minimize the audit work of blindness and randomness.

2. To ensure the independence of external audit

The independence of the external auditor can make a fair and impartial professional judgment, which is appropriate to carry out the audit work is essential. The independence of external audit bodies connotation should be reflected mainly in the form of independence and de facto independence in two ways. Formal independence requirements of external audit in the organization of organizations with high status, the external auditor should have access to senior management and board of directors support. Essentially refers to an independent external audit staff in the spirit of the need to maintain the necessary independence, should be a fair and just manner and avoid conflicts of interest, in carrying out external audit work, to maintain an honest belief in compliance with the Code of Ethics for the entire audit process does not make a significant compromise (Frank Ahrens (2008-03-19). "Moral Hazard': Why Risk Is Good'". The Washington).