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The influence of ethics on auditing - Research Paper Example

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The influence of ethics on auditing

On a broader perspective, Gillan and Starks (2008) refer to corporate ethics as a system of rules, factors and laws affecting a company’s operations. Irrespective of the definition taken up, it is common for researchers to categorize corporate mechanisms into two groups; those that are internal to firms, and those that are external to firms. Ethics is charged with the responsibilities and duties of a firm’s board of directors in managing the firm in addition to the relationship they have with the firm’s shareholders as well as stakeholder groups (Duska, Duska & Ragatz 2011). Issues of corporate governance arise in a company with the presence of two conditions. First is in the event that there is a conflict of interest or an agency problem involving members of the company who might be the workers, consumers, or managers. The second condition is that the transaction costs are such that the problem dogging the agency cannot be ameliorated via contract. Another definition of corporate ethics is more comprehensive in that it argues ethics is involved with mechanisms through which a company’s stakeholders are able to exert control over corporate management and insiders in such a manner that their interests are protected (John and Senbet 2008). It is imperative to note that the term shareholders does not only refer to shareholders, but also debt holders in addition to non-financial stakeholders like suppliers, customers, employees, as well as other interested parties. A review of corporate ethics’ various definitions clearly highlights that they all allude to the presence of conflicts of interest between outsiders and insiders, hailing from the separation of control and ownership. The recent past has seen a growth in interest in corporate governance. Prevalent governance mechanisms have been questioned with intensified debates following business failures and financial scandals, and more recently, several accounting frauds of high visibility that have allegedly been perpetuated by managers (Gillan & Starks 2008). Underlying concepts of good corporate ethics Fairness Fairness refers to equitable treatment with the stakeholders in entirety. Equitable does not mean equal. It means treating each entity as much as they deserve; suppliers, customers, and stakeholders need to be categorized accordingly and afforded treatment on an equitable basis (Shleifer & Vishny 2007). Values and systems that underpin the organization need to be balanced by considering every individual with a legitimate interest in the organization and respecting their respective views and rights. Transparency/Openness Transparency alludes to the clear and open disclosure of pertinent information to shareholders as well as other stakeholders, and also entails not withholding information in the event that it may out rightly affect decisions. It means a default position with regard to the provision of information instead of concealing it, and open discussion on an issue of concern. Transparency includes all possible voluntary disclosures. Certain circumstances may however warrant the concealment of information and may be justified. They include confidential discussions about individuals, discussions regarding future strategy, and discussions that result in an agreed position that is consequently made public (Shleifer & Vishny 2007). Independence As a concept, independence is important to directors. Reports on corporate governance have increasingly stressed the pertinence of independent directors. They ought to be in a ...Show more


Influence of Ethics on Audit (Author’s name) (Institutional Affiliation) Ethics connotes a system by which organizations are controlled and directed. It is a chain of relationships between the directors of a company, its shareholders, along with other stakeholders…
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The influence of ethics on auditing essay example
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