THE IMPORTANCE OF ETHICS IN THE AUDITING PROFESSION TODAY

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CHAPTER ONE
1.0 Introduction
Business has become complex and sensitive nowadays as such capitalization has become
unequivocally paramount. In that regard companies go public and enlist in stock markets and
in other financial markets to alleviate capital constraints. As such holders of equity or non-
equity capital become major stakeholders and other interested parties (e.g. customers,
employees, creditors, lenders, government etc.) to the point where these stakeholders appoint
auditors to give reasonable assurance that the financial statements in all material respects
present a true and a fair view on the financial performance and position of the entity to aid their
decision making. In most states all over the world countries have promulgated legislation that
make it mandatory for enlisted companies to be audited and publish audited financial results
of the financial year under assessment. The auditing profession has become more important
over the last century hence I feel ethics need to be upheld religiously in light of this mammoth
responsibility.

1.1 Background of the problem

For the past decade the auditing profession has been implicated in a lot of corporate scandals,
from the undeniable Enron scandal leading to the downfall of Anderson an auditing firm which
was established in the early 19th century to the KPMG scandal which may lead to its demise
as a consequence. All the corporate scandals over the last decade were a result of a gross
violation of ethics which are essential for the profession’s relevance today in aiding decision
makers interested in reporting entities. The profession needs to put more emphasis on ethics so
as to ensure that auditors all over the world fulfill the expectations required of them by the
public. This project in light of the of responsibility auditors hold (as seen in the preceding
paragraph) seeks to analyze the importance of ethics in the profession today. Ethics therefore
in this regard are very fundamental if the auditing profession is to remain relevant and to
resuscitate the profession’s reputation and dignity. (Ardelean, Auditor's Ethics and their impact
on public trust, 2013) stated in his writing that “the growing importance of ethics within the
audit profession is due to the highly resonating financial scandals which had a negative impact
on the auditors. The consequence was that the auditors’ integrity and morality were questioned
by users of audit services. Moreover, reserves were expressed with regards to auditors’
legitimacy on the market, as their ethics appeared as having been compromised”.

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1.2 Gap Analysis
(Ardelean, Auditor's Ethics and their impact on public trust, 2013) in her article states that
“Public trust represents the foundation of the auditors’ existence on the market and measures
the degree of confidence that different parties have in the services provided by the profession”.
The public in light of this revelation must not be limited to the investing sect but cuts across
to a wide variety of users of financial statements and in particular the audit report. The public
incorporates clients, suppliers, investors, credit institutions, government etc. hence ethical
standards are immensely important in the auditing profession today. (Justine Simpson, 2013)
in their book Corporate Governance, Ethics and CSR comment on Professor Limperg’s theory
of rational expectations to state that “the usefulness of the auditor’s opinion is based on the
general understanding society has about the usefulness of audit. If the audit process changed
so that it ceased to inspire a uniform level of confidence in society, but instead inspired different
level of confidence in different users, society’s confidence in the audit process would decline
as the social usefulness of the audit was reduced.” The authors therefore assert that the audit is
of interest to a range of users hence its usefulness thereof must not vary.

The International Federation of Accountants simply puts forward a code of professional

conduct which provides ethical guidelines to accountants. The profession therefore needs to
take a careful introspection of the degree of ethical compliance as the scandals that have
occurred over the last decade point to violation of ethical guidelines stipulated in the code of
professional conduct.

This project simply seeks to address emphasize the need of ethics and their importance amidst
the scandals that have rocked the profession and that have an adverse effect on its relevance
today. This research will establish the cause of ethical failure in the profession through an
enquiry to some corporate scandals including the KPMG scandal to establish the importance
of ethical standards in the accounting profession.

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1.3 Purpose of the study
The study has one broad objective that is to emphasize the importance of ethics in auditing
profession today to set the tone for the restoration of the profession’s relevance and reputation
today.

1.4 Research objectives

 To analyse the causes of ethical failure in the profession over the last decade.
 To establish the role and mandate of the auditor today.
 To evaluate the impact of these failures on the public.
 To establish the need for full compliance to ethical standards in the profession today.

1.4.1 General research question

 Are ethical standards important in the profession today?

1.4.2 Specific questions

1. What are the causes of ethical failure as seen by the corporate scandals over the last
decade?
2. What is the role of the auditor today?
3. How has ethical failure on the part of auditors impacted the public?
4. Is full compliance to ethical standards important in the auditing profession today?

1.5 Significance of the study

To the researcher
The research project is carried out in partial fulfillment of the requirements for the Bachelor of
Commerce Accounting Honours Degree at The National University of Science and
Technology. The research avails an opportunity to the researcher to express himself to a
particular academic concept which has rich practical relevance in the accounting profession
today.

To the university
The research will contribute substantially to the pool of existing ideas on the subject of ethical
auditing. This project will enable Nust to incorporate ethics in the accounting curricular so that
she produces quality and grounded accounting students and ultimately ethical accountants who
will make a difference in the economy.

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Organizations
The project is beneficial to organizations (organizations refer to business organizations and
audit firms) as the ideas contained herein will cause organizations to re-inforce their corporate
governance structures. The ethical culture is supposed to be the center of organizational culture
to positively influence both financial reporting and auditing.

Regulatory bodies
Our government can use the ideas herein to develop solid regulatory frameworks especially
placing special emphasis on ethics in the accounting profession. This project can also help
IFAC to reinforce ethics and the compliance thereof to the accounting fraternity across the
globe.

Scope of the study

The study is focused on ethical failure in the auditing profession over the last decade (2000-
2017) to set the tone to emphasize the importance of ethical standards today. The researcher
has set global parameters as the problem of ethical failure has a global reach as evidenced in
the accounting scandals over the last decade.

1.6 Literature Review

Background /Summary
Definition of auditing and Explanation of the auditor’s role
The researcher will firstly define auditing and the philosophy thereof. A definition is important
so as to set a conceptual foundation of the subject matter of ethics in auditing. A number of
theories will be cited and explained in an attempt to define auditing and its underlying
philosophy. The role of the auditor must be clearly explained and how important it is to various
stakeholders who have an interest in the audit report, the auditor’s role will be explained as a
fiduciary duty sanctioned by the legal framework (i.e. Companies Act).

Ethical theories
Ethics have to be defined so as to understand what they are and a theoretical enquiry is to be
made of the types of ethics that exist which are consequentialism, deontology and
virtue/classical ethical theory. It then follows that the researcher will have to explain how ethics
are applied in auditing and how there is a causal link between public trust and ethical failure
on the part of the auditor. In the latter the role of the public will be explained to elaborate on
the auditor’s mandate and why ethical standards are important his profession today.

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Agency theory
The agency theory has to be clearly defined to identify the involved parties in the subject
matter of ethics in business today. Under this theory the principal agent problem will be
explained with specific reference to auditing. In this approach the researcher will establish
who the auditor must serve and who he’s serving today leading to the principal agent problem
which has led to the reputational damage and the decline in public trust.

1.7 Research Methodology

It explains the methods that are going to be used to identify, gather and analyze information.
The project is to be conducted using secondary sources of data in the form of literature review
and this includes use of textbooks, journals, magazines, the internet and other texts and reports
to gather data. This is mostly to gain data on the theoretical aspects of ethical auditing. To
gather information on the practical aspects, the researcher will make use of primary data
sources and the preparation of questionnaires, conducting personal interviews and
observations. The researcher will also examine case studies relevant to the subject matter.
Mostly the researcher is going to use questionnaires and interviews. Sampling techniques will
also be used to select the sampling unit. Due to time and financial constraints the researcher
will use questionnaires and interview professional accountants, accounting students, the
general public in Bulawayo.

Data presentation and analysis

Judgmental techniques shall be used to analyze data. The researcher shall subjectively analyze
the reasonableness and relevance of responses for consideration.

Data shall be presented in the form of diagrams, graphs, tables, figures whichever is
comprehensive.

Assumptions

 The researcher assumes that respondents will respond within a reasonable time period to
enable the timetable to be adhered to.
 The researcher assumes that she will have enough money to meet the expenses.
 The sample size to be analyzed will give a near true reflection of the whole population.
 That all questionnaires sent out will be responded to.
 That all respondents will give truthful responses that will facilitate reasonable inferences
and deductions.

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1.7.1 Research limitations
 For reasons of confidentiality, respondents may not be willing to release some of the
information asked.
 Unavailability of other necessary resources such as printer, reference books and money for
other expenses may undermine the quality of the research project.
 The fact that the research shall be conducted using sampling, the weaknesses of sampling
shall have a bearing on the reliability of the findings.
 The researcher is limited by the time frame within which this project has to be conducted
and presented.
 Respondents may be unwilling to cooperate or respond due to work pressure or
confidentiality reasons.
1.7.2 Delimitations
 Guarantee confidentiality in the questionnaire to incentivize respondents to participate
in the survey
 The researcher will use the resources at his disposal and use cheaper facilities to
alleviate budget constraints
 The researcher will use a reasonable sample size in light of the time factor.
 The researcher will structure the questionnaire in such a way that minimal time is
taken when responding as some respondents will be busy at work.

1.8 Organization of the study

The research chronology will generally be five chapters as follows:

Chapter 1: Introduction

This chapter will contain a description of auditing, and a brief portrayal of the background to
the problem of ethical failure in the auditing profession today to establish the importance of
ethical standards in the auditing profession today.

Chapter 2: Literature Review

This chapter will include a summary of literature on the definition and philosophy underlying
auditing. Sources will include journals and scholarly articles to explain the theory of ethics,
agency and the fiduciary responsibility of auditors with regards to legal frameworks. This will
provide the basic literature that will be useful in stressing the importance of ethical standards
in the auditing profession today.

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Chapter 3: Research Methodology

This chapter will be a description of the techniques applied to gather information. The research
methodology will be mainly composed of structured interviews and questionnaires.

Chapter 4: Presentation of Findings

These will be graphical-based analytical methods used to present results from the research.

Chapter 5: Conclusions and Recommendations

Conclusions will be drawn after analyzing the findings. This will be an integration of the
research finding with the literature collected on the importance of ethical standards in the
profession today. Recommendations will be made on importance of the ethical standards in the
auditing profession today cutting across various stakeholders which are tertiary institutions
(especially Nust), business organizations, audit firms, regulatory bodies (both legal and
professional).

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CHAPTER TWO: LITERATURE REVIEW

2.0 INTRODUCTION
Ethical behaviour has taken the up toll in various professional disciplines embodied in different
codes of professional conduct thereof. This is a clear indication that professionals alike must
adhere to specific ethical standards to uphold their personal integrity and corporate professional
integrity.
It is for this reason that this writing seeks to address the importance of ethical standards in the
auditing profession today. Auditors have a huge mandate to shareholders of various
corporations and the general public as the ones who are supposed to form an opinion on the
financial statements of their clients. The researcher in this chapter seeks to explore different
writings by other researchers premised on the research objectives which are:
 To analyse the causes of ethical failure in the profession over the last decade.
 To establish the role and mandate of the auditor today.
 To evaluate the impact of these failures on the public.
 To establish the need for full compliance to ethical standards in the profession today.

2.1 Definition of Terms

For the purposes of this study, the following definitions were the working definitions.
Auditing

1. In accordance to the Auditing Profession act, (APA 2006), an Audit is the examination
of in accordance with prescribed or applicable auditing standards;
 Financial statements with the objective of expressing an opinion as to their fairness or
compliance with an identified financial reporting framework and any applicable
statutory requirements; or
 Financial and other information prepared in accordance with the suitable criteria with
the objective of expressing an opinion on the financial or other information.

2. An audit is an examination by a competent independent person of the financial

statements of an enterprise, in conjunction with relevant and reliable supporting
evidence in order to express an opinion whether or not the statements give a true and
fair view.

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Ethics

Ethics or moral philosophy can be explained as the systematic effort to understand the moral
concept. Further, moral concept could be understood as the difference between right and
wrong, good and evil and evil and unfair (Pojman 1989). The distinction between ethics and
morality is clear in philosophy- ethics reflect over morals is the understanding of how we
actually act. In other words, ethics can be seen as the theory and morality as the practice. Ethics
are therefore a framework when considering actions in a situation, for example auditing
financial statements (Rong, 2011).

2.2 Analysis of the causes of ethical failure seen in accounting

scandals of the last decade.
2.2.1 Enron
Enron’s downfall came about because Enron inflated its recorded assets and profits or in other
cases recorded non-existent or fraudulent assets by putting debts and losses into special purpose
vehicles that were not included in the company's financial statements.

Enron also used hidden financial transactions between Enron and related companies formed to
take unprofitable entities off the company's books. A lot of the profits that it reported were
theresult of deals with special purpose entities. This meant that many of Enron's debts and the
losses were not reported in its financial statements.

The entities made Enron look more profitable than it actually was. The corporate officers
performed more and more contorted financial deception to make it seem that they were making
billions in profits yet they were actually making losses. The practice drove Enron’s stock price
to very high levels, at which point the executives began to work on insider information and
trade millions of dollars’ worth of Enron stock. The executives and insiders at Enron knew
about the offshore accounts that were hiding losses for the company. The main cause of the
fraud that occurred in Enron was that those charged with corporate governance where now
falsifying the accounts to paint a picture of high profits being made by Enron, which was not
the reality.

Two points can be inferred from the paragraphs above:

 Accounting principles where manipulated by Enron to hide the fact that they were
making losses. They did this by forming the special purpose entities which are legal but
the way they would then account for the transactions of Enron and the Special Purpose
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 entities meant that they were able to cover-up the losses they were actually making
suggesting that there was a loophole in the accounting system.
The executives at Enron knew of the losses being made and where part of the cover up, but
they did not report it to the investors. This is clearly against the principles of the agency theory
which states that the directors should do everything that is in the best interests of the
shareholders. Corporate governance ethics in Enron had been corrupted.

2.2.2 Huron Consultancy Group

Huron started as an offshoot from Anderson in March 2002. This group was a purely consulting
practice and had no connection with the audit of Enron which caused the downfall of Anderson.
Huron announced its intention to restate 2006 to 2009 financial statements due to incorrect
accounting of non-cash charges relating to how payments received by the sellers of certain
acquired businesses were subsequently redistributed to how payments received by the sellers
of certain acquired businesses were subsequently redistributed among themselves and to other
select Huron employees. According to Huron’s statement, it came to the attention of the Audit
Committee that there was something amiss when selling shareholders of an acquisition had an
agreement among themselves to reallocate a portion to a Huron employee who was not a
shareholder, upon which it launched an inquiry to see if other similar situations existed.

It emerged that Huron had agreements to pay some employees at four of its recent acquisitions
based on their unit performance after the transaction was completed. These agreements were
on their own quite legal, but their accounting was not quite done right. Instead of charging
these compensations to P&L expenses as non-cash charges with negative impact on Huron’s
net income, they were booked as purchase price goodwill on the balance sheet, thus with no
impact on net income and EPS.
Thus, net income and EPS were overstated for these years, and the restatement has the effect
of reducing net income by these incorrectly accounted charges. These restatements are
significant, in 2006 net income would have decreased by $4 million from $27 million to $23
million; in 2007, net income would have decreased by $18 million from $42 million to $24
million; in 2008, net income would have decreased by $31 million from $41 million to $10
million; in Q1-2009, net income would have decreased by $4 million from $10 million to $6
million. Cumulatively, the total restated amount was $57 million over these four years.

2.2.3 Satym
New York-listed Satyam specializes in business software and back-office services for clients
such as General Electric and Nestle. The chairman of Indian outsourcing company Satyam
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Computer Services resigned, disclosing that he had inflated the amount of cash on the balance
sheet of India's fourth-largest IT company by nearly $1 billion, incurred a liability of $253
million on funds arranged by him personally, and overstated Satyam's September 2008
quarterly revenues by 76% and profits by 97%.

From the paragraph above, questions can be raised on the corporate governance system at
Satyam. The building of fictitious assets shows that the company executives were not
upholding proper principles of corporate governance.

2.3 The qualitative causes

The quantitative causes above show what caused the scandals on the surface. The qualitative
causes listed below try to go deeper and look at why the directors resorted to deception and
why they succeeded.

2.3.1 Reward systems

In most public limited corporations, the directors and executive management are paid according
to the performance of the company e.g. how much profit the company is making. There is a
danger that to increase their earnings the directors and those in executive management positions
will falsify accounts to show that the company’s profits are increasing so that their earnings
can increase. This was also a factor in the corporate scandals like Enron where the directors of
Enron inflated profits so that the stock options that they had been given would increase in value
and they would sell them off.

2.3.2 Shareholder Apathy

Shareholders in most companies are not concerned in the way a company is run. Most
shareholders are interested in profit generated which will translated to capital gains for their
shareholding or dividends to be paid out to them. Their lack of participation at the company’s
annual general meetings can cause directors and executive management to have a free reign of
the company’s affairs.

2.3.3 Agents personal interests

Those perpetrating fraud in the companies prioritise their personal interests before those of
the shareholders whom they are supposed to serve as agents.

Accountants, auditors, investment banks and law firms, whose independence and integrity had
traditionally been relied upon, were often seen to join the rush, under the threat of being left
behind in access to riches.

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The management tasked with the responsibility of being agents for the shareholders had
become obsessed with a focus only on short-term earnings to maximize bonuses. This was
mainly because of misguided compensation and high remuneration for the executives which
meant that the more profits a company makes the more remuneration they get. The end result
was overstating profits so as to report high earnings.

The auditors were also cashing in. Enron's auditor firm, Arthur Andersen, was accused of
applying reckless standards in their audits because of a conflict of interest over the significant
consulting fees generated by Enron. In 2000, Arthur Andersen earned $25 million in audit fees
and $27 million in consulting fees. The auditors' methods were questioned as either being
completed as a way of advancing their own interests.

2.3.4 Auditor’s misconduct

Arthur and Andersen the auditors failed to disclose the serious bookkeeping concerns. The
auditors had also improperly destroyed supporting documents related to Enron audits in an
attempt to cover up any negligence in its audit. The destruction of documents on its own shows
misconduct on the part of the auditor. Enron auditors were also to blame in that they tried to
conceal the trouble that was looming at Enron because they might not have wanted to lose the
consulting work that they did at Enron.

Loss of auditor independence also seems to have been the cause as highlighted above.

2.3.5 Lack of corporate governance

In most of the companies where the accounting scandals occurred the major similarity between
the company was that those that had been charged with governance of the implicated entities
were the ones that were committing the acts of fraud

Analysts attributed Sataym’s downfall to corporate governance failure. The report goes on to
say that ACCA research indicated that failure in corporate governance is a major contributor
to the credit crunch and consequently the global financial crisis of 2009/2010.

From the ACCA factsheet, it can be drawn that failure of corporate governance was to blame
for the scandal at Satyam. If the chairman of the board of Satyam had upheld corporate
governance profits were not going to be overstated as he has ultimate oversight of the corporate
governance policies of the entity.

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In summary the above paragraphs all seem to point to the fact that the directors and
management were now putting their personal interests before those of the shareholders.
Management was able to pursue its interests because it had no regard for corporate governance
principles.

2.4 Theoretical Framework

2.4.1 Ethical Theory
The etymology of the word ethics has its origin in the Greek word “ethikos” which means
“usage” and was much used by Aristotle to signify valuable fundamental convictions, while
the word “moralis”, the Latin root for ’moral’, was established by Cicero to mean values
growing from a complex body of beliefs. A definition of the notion of ethics is issued by The
Ethics Resource Center which presents it as being ’good and right behavior and how people
make those judgements’ (Ethics Toolkit). The notion of ethics comprises in itself the concepts
of integrity, honesty and responsibility. Thus, ethics are perceived by the wide public as a set
of moral principles and rules of conduct guiding the audit profession, a condition sine qua non
of their legitimacy on the market (Ardelean, 2013).

Two people who figure large in any discussion of ethics are Jeremy Bentham and Immanuel
Kant. Bentham, along with J S Mill, is the founder of a movement known as Utilitarianism
and both have also significantly influenced economic thought. According to utilitarianism an
action is right if and only if it conforms to the principle of utility, that is, it will be more
productive of pleasure or happiness or better prevent pain or unhappiness than an alternative.
Just how right an action depends entirely on its consequences and this why his theory is also
referred to as consequentialism (or act-utilitarianism) (Gaffkin, 2007).

In the auditing context utilitarianism simply implies that auditors will exhibit moral behaviour
only if their self interest is maximised. For example, an auditor with a financial interest in the
company he/she is auditing will be acting out of self interest by giving a clean opinion when
there are possibilities that the opinion should be qualified. This might at the point serve as a
good outcome for the client, but what about other stakeholders? As a potential shareholder or
an employee, it would be in my best interest that the auditor did not have any self interest in
the auditing (Rong, 2011).

On the other hand, Immanuel Kant emerges with another theory which asserts that an action
has moral value if it is performed out of duty hence the term deontology.

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In deontology the emphasis is on individual duty such as telling the truth, acting justly or
keeping promises. Kant held that there are two foundational principles. First, always act on a
principle that you are willing to have everyone else act upon. Secondly, always be respectful
to others (and yourself). These form part of what Kant referred to as the categorical imperative,
which is a compulsory moral law designed as a method to guide free human action. These are
determined by applying the universabilty test – a process of using our reason to ask what would
happen if we “universalised” what we wanted to do, for example what would happen if
everyone stole from everybody else? So, do not steal. This is an act according to the principle
(maxim) that you believe should be a universal rule of behaviour (Gaffkin, 2007).

A maxim, a rational principle, which underlies an action, has to fulfil two criteria to become
universally binding: first it has to be shown that the maxim can be universalised without
contradiction. Breaking promises if the disadvantages outweigh the benefits is not
universalisable, because if it was nobody could rely on anybody telling the truth anymore.
Secondly, one has to show that a rational agent ought to will the maxim, i.e. that it actually
creates conditions which are conducive to human life (Preuss, 1998).

In utilitarianism, lying could be justified if it benefits amount of people. This is not the case for
the deontologist. Lying is fundamentally wrong, and it is our duty to tell the truth. So even
though someone will get hurt, lying is not justifiable according to deontologists (Rong, 2011).

The essence of the code of professional conduct for accountants identifies with deontological
principles. In other words, auditors’ actions must be sanctioned by the duty to perform due
diligence in issuing their opinion as there are numerous interested stakeholders.

The auditor should not refrain from qualifying his report if it is otherwise appropriate, merely
on the grounds that it may lead to the appointment of a receiver or liquidator. This clear,
deontological view is necessitated by the public role of the accountancy profession which
requires it to place above any other the public interest in being informed of the auditors doubts
about the ability of the company to continue trading. There may be individual cases where an
auditor, after considering the consequences of a qualification, would want to give the company
a clean account; the more since a qualification is only a weak indication of business failure
(Preuss, 1998).

Moizer (1995, p. 430) concludes that the profession’s Code, which is based on either
deontological or rule-utilitarian approaches, must be followed without regard to the particular

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situation; auditors ought not to consider the consequences of their actions, “since they have
already been evaluated for the profession as a whole”.

In contrast to the universal emphasis on moral duty in deontology and on general happiness in
utilitarianism, Aristotle emphasises the importance of a person’s character for morality
(Preuss, 1998). Virtue ethics therefore considers what good traits of character a person should
possess in order to be a good human being (Rong, 2011). These traits or virtues that a person
should have are courage, moderation, justice and prudence- the cardinal virtues. Virtues that
make a person do good invariably translate to virtue that enable someone to carry out his or her
task well. To do so the person has to both think correctly and carrying it out correctly. The
distinction of these two actions of thinking and carrying it out could be divided as intellectual
virtue and virtues of character. Intellectual virtue includes good judgement, discernment,
understanding, objectivity, knowledge and several other characteristics (Cheffers and
Pakaluk,2005). These are characteristics that can be acquired through books and study, though
carrying them out to life needs virtues of character that only could be acquired through practice
(Cheffers and Pakaluk,2005).

For an auditor, it is important to both possess intellectual virtue and virtues of character. In an
audit it is necessary to think correctly, and carry out this thought. Some of intellectual
characters that are of importance in the auditing profession are objectivity, professional
judgement, independence. As of character virtue an auditor should possess virtues of integrity,
justice and courage (Rong, 2011).

Auditors have a mandate of exercising ethics due to the definition of their tasks and as such the
author has explored the theories that underpin ethics and the different writings therein. Auditors
act as agents but whose agents? The exploration of agency theories is going to help in
establishing the agent principal relationship in the profession today in the most reflective way.

An agency relationship arises when or more principals (e.g. an owner) engages another person
as their agent (or steward) to a perform service on their behalf. Performance of this service
results in the delegation of some decision making authority to the agent. This delegation of
responsibility by the principal and the resulting division of labour are helpful in promoting an
efficient and productive economy. However, such delegation also means that the principal
needs to place trust in an agent to act in the principal’s best interests (ICAEW, 2005).

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2.5 Agency Theory
A simple agency model suggests that, as a result of information asymmetries and self-interest,
principals lack reasons to trust their agents and will seek to resolve these concerns by putting
in place mechanisms to align the interests of agents with principals and to reduce the scope for
information asymmetries and opportunistic behaviour (ICAEW, 2005).Agency theory posits
an inherent moral hazard in principal-agent relations that gives rise to agency costs. For
example, agents can adopt accounting procedures and methods that give favourable accounting
results and which may maximize their own wealth under compensation and reward incentive
schemes.

Auditors act as agents to principals when performing an audit and this relationship therefore,
brings with it similar concerns with regard to trust and confidence as the director-shareholder
relationship, prompting questions about who is auditing the auditor. Agents (whether they are
directors or auditors) may be trustworthy without a need for further incentives to align interests
or monitoring mechanisms such as audit or increased regulation. However, the simple agency
model would suggest that agents are untrustworthy. Like directors, auditors will have their own
interests and motives to consider. For example, auditors may be risk averse and being conscious
of their potential liability, introduce risk management processes that result in limitations in the
scope of their work and caveats in their reports which principals may find frustrating.

Auditor independence from the board of directors is of great importance to shareholders and is
seen as a key factor in helping to deliver audit quality. However, an audit necessitates a close
working relationship with the board of directors of a company. The fostering of this close
relationship has led (and continues to lead) shareholders to question the perceived and actual
independence of auditors and to demand tougher controls and standards over independence to
protect them. As far as independence and objectivity are concerned, auditors need to be
conscious of threats to objectivity and apply suitable safeguards where necessary. Reputation
is a key factor in promoting trust and auditor independence is an important quality that
shareholders look for. Auditors have an important incentive to maintain independence to
protect their reputation and thereby help them to retain and win an audit (ICAEW, 2005).

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2.6 Auditor’s mandate in light of the Ethical theory coupled with the
Agency theory
The agency theory explains why the auditors’ commitment towards the wider public is
perceived as imperative to justify their position. The auditors act as an intermediary between
the principals, the capital owners, and the managers who run that capital, in the sense that
auditors are overseeing the use which is given to the investors’ capital. The auditors’ legitimacy
to act on behalf of the public has its foundation on moral grounds and their logic of existence
is confirmed by their accountability to all stakeholders interested by the audit report. This is
the reason why they are perceived as guardians of the public interest. In this position, the
auditors protect the interests of a wide range of stakeholders and so they need to put their
interests ahead of their own. Moreover, the auditors’ fiduciary responsibility marks their
legitimacy on the market with the aim to enhance the quality of the financial report, portraying
in a complete and honest way the company’s accounts. This is the reason why the auditors,
while performing their work, must avoid the pursuit of their personal interests. Thus, any
conflict of interest, which would affect professional judgement and compromise the ethics of
the auditors, needs to be neutralized so that the auditors gain in trustworthiness and act as agents
of trust. As stated above, the objective of the audit profession is to generate trust in the financial
reporting and thus to contribute to the economic sustainability. By auditing a company’s
financial statements, the auditors confer them credibility and trust. For this purpose, ethics play
a crucial role in making sure that the auditors have the same interests as the investors and other
stakeholders and that their professional judgement is not weakened by any pressure or incentive
coming from the management of the client company (Ardelean, 2013).

2.7 Literature Gap Analysis

2.7.1 (Alexandra Ardelean 2013) Auditor’s ethics and their impact on Public trust
[Link] Evaluation of the impact of these failures on the public.
The writer in this research takes an analytical stance in establishing a relationship between
auditor ethics and public trust. This research was influenced by the financial scandals that
invariably led to growing mistrust from the public spectrum. From a methodological point of
view, the demarche is constructivist in nature because it starts by presenting the auditors’
responsibility towards the public interest, to debate afterwards that an increased ethical
behaviour will contribute to the restoration of public trust, badly damaged as a consequence of
audit failures. Also, it is analytical because it explains how perceived auditor’s ethics have an
impact on public trust.

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2.7.2 (Adeyemi & Fagbemi, 2011) The perception of ethics in the auditing profession
in Nigeria
[Link] The need for full compliance to ethical standards in the profession today.
The writer in this research establishes the need for accountants and their role in society. A
realisation is made that the profession was negatively impacted by the deficiencies in reporting
and the role of auditors in disclosing such. The public hence has put into question the role of
accountants and auditors in light of these circumstances. From a methodological standpoint
primary data were collected for this study. The primary data was obtained from the targeted
respondents through a carefully constructed questionnaire. The questionnaire was designed to
capture the demographic data of the respondents and their opinions with respect to the research
questions. The questionnaire was divided into two sections. Section one sought to obtain
information on demographic details of respondents while Section two consisted of items
measuring the perception of respondent groups on ethics and the future outlook of auditing
profession. The questionnaire was constructed using a five-point likert scale. The results
pointed to the need for high ethical standards in Nigeria for the restoration of the profession.

2.7.3 Summary
The researcher notes that from past research that the focus was proving the relationship
between ethical compliance and public trust in the profession. The researcher however in this
instance takes another approach that is he will establish the importance of ethical standards
given the direct relationship that exists between these ethical standards and public trust.

2.8 Summary
The chapter relayed the theory underpinning ethics and the agency theory. This was to provide
a foundational base to establish the role of auditing fundamentally. This then culminates to
define the mandate of the auditor followed by an analysis of similar studies carried on by
research to establish the researcher’s gap and the complete justification of his research.

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Chapter Three: Research Methodology

3.0 Introduction
This chapter discussed the research methodological approaches undertaken in the data
collection and their justifications. The researcher sought to explain on the methodology that
was used in conducting the research as well as the rationale that used to choose the selected
methods. Jankowicz (1995) defined a research methodology as the analysis of, and rational for,
the particular method or methods used in a given study and in that type of study in general.

A research is an investigation of finding solutions to scientific and social problems through

objective and systematic analysis. It is the search for knowledge, that is, the discovery of
information about matters hidden truths, Rajasekar et al, (2013). This chapter focused on the
research approach, design, sampling techniques and the respondents that the researcher will
use in undertaking research work.

3.1 Research Approach

The research study made use of a qualitative approach in conducting the research since it is
based on subjective data items which cannot be given a numerical value, for example the
attitudes and opinions of individuals on the subject of ethics in the audit profession. The
opinions were described in words rather than in numbers. The researcher’s study is to enquire
of the standing of ethics in the profession and whether they are necessary in the profession
today.

A qualitative approach was used in order to find out the possible impact of ethics on the
profession and their importance following the corporate scandals that have implicated the
profession. Qualitative data came in the form of how ethical failure has impacted the public
and to establish the need for full compliance in the profession today. There were options on
questions and space to enable the respondent to explain their answers.

3.2 Research Design

The researcher sought to achieve the research objectives by using both primary and secondary
data. Primary data can be defined as data, which was collected directly from targeted
respondents. Secondary data is also referred to as desk research and involves the use of data
which has been collected from publications such as Text Books, Newspapers, and various
internet sites, among many others. A research design is a plan and structure of investigation so
conceived as to obtain answers to research questions, Cooper and Schindler (2003, p. 146).
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According to Trochim (2005), research design “provides the glue that holds the research project
together. A design is used to structure the research, to show all of the major parts of the research
project work together to try to address the central research questions.” The research design
provides the components and the plan for successfully carrying out the study. The research
design is the backbone of the research protocol. The function of a research design is to ensure
that the evidence that will be obtained enables the research problem to be effectively addressed.

3.3 Research Respondents

The research respondents are the target population that the research will cover. It is the list of
the members of the target population that can be used to draw conclusions on the research
subject Wrenn et al, (2007). The target population sample for this research consisted of
chattered accountants in industry or accountants (uncertified) working in the finance function
of both public and private limited companies, academic accountants consisting of lecturers,
accounting students with reasonable knowledge on the subject matter .

3.4 Sampling Techniques

Quota sampling was used since the population from which the sample was selected is not
homogeneous. The researcher also employed purposive sampling to ensure the data collected
is relevant. The researcher purposely chose chattered accountants, accountants (uncertified)
academic accountants, accounting students. The researcher formed quotas based on the
members’ shared attributes or characteristics. The population was to be grouped into quotas of
chattered accountants, accountants (uncertified) academic accountants, accounting students.
Purposive sampling was used to ensure units in the quotas all provided information relevant to
the research work.

3.5 Sample Size

This research study made use of a medium sample size of 35 respondents. These ensured
diverse views can be captured from the population sample. It comprised of 10 accountants,
5 .academic accountants, 10 accounting students, 10 members of the public. The sample size
was made up certified accountants (chattered accountants) and regular accountants in industry,
academic accountants who are responsible for training prospective accountants, accounting
students who are in tertiary institutions who are in the process of becoming future accountants
and general members of the public who understand the subject matter. Given the time
constraint, the chosen sample size was the appropriate to obtain the required information.

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 Respondent Class Number
Chattered accountant 10
Accountant (uncertified) 10
Academic accountant 5
Accounting students 10
Total respondents 35
Table 1: Summarisation of results
3.6.0 Sources of Data
The data collected was from both primary and secondary sources of data.

3.6.1 Secondary Data

Other authors in the same field of research collected this data. It is collected through a desktop
kind of research and makes use of textbooks, financial journals, articles, reports and statements
from relevant tax and government authorities. In this case, the researcher poses questions that
are addressed through the analysis of a data set that they were not involved in collecting. The
data was not collected to answer the researcher’s specific research questions and was instead
collected for another purpose. The biggest advantage of using secondary data is economics in
that someone else has already collected the data, so the researcher does not have to devote
money, time, energy and resources to this phase of research.

3.6.2 Primary Data

The researcher acquired this data by applying research instrument in the form of a questionnaire
into the field. Primary data is defined as the original works of the researcher or raw data without
interpretation or pronouncements that represent an official opinion or position. Primary data
can be collected in a number of ways. However, the most common techniques are self-
administered surveys, interviews, field observation, and experiments. Primary data collection
is quite expensive and time consuming compared to secondary data collection. The researcher
made use of questionnaires to gather data relevant to the research study.

3.7 Research Instruments

The researcher made use of questionnaires. A questionnaire is a set of questions for gathering
information from individuals. A questionnaire is simply a tool for collecting and recording
information about a particular issue of interest. The researcher issued physical hand-outs of the
questionnaires to the respondents as a way of administering data collection. The researcher
made use of open-ended questions so that the respondents can express their ideas clearly and
freely without any limit. Closed ended questionnaires were also used because they solicit for
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specific responses so that the researcher gets full information on the study. Questionnaires
provide anonymity and guarantee the security of the respondents will not be revealed despite
the sensitivity of their answers.

Advantages of questionnaires
 They are cheaper to administer since the researcher was able to only drop off the
questionnaires to the respondents who were able to answer them on their free time.
 There is reduced bias because of the uniformity of the presentation of questions. The
researcher’s opinions will not affect the respondents.
 Anonymity is guaranteed.
 Questionnaires provide a point of reference for the researcher.
 Questionnaires were easy to draft.

3.8 Validity
Questionnaires had both close ended and open-ended questions. The use of open-ended
questions ensured that respondents express themselves and their ideas freely. Since the research
involves qualitative data, the use of open-ended questions provided results easy to analyse.
This ensured the data collected was valid. The researcher also employed a transparent and
systematic approach when collecting data from the sources. An audit trail of the data collection
process was maintained and proper documentation was kept showing the flow and processing
of the data. The selection of appropriate respondents ensured the validity of the research
because it eliminated systematic bias in the quota.

The researcher used approved and tried questions, which had been proved able to accumulate
valid data. To ensure the validity, the researcher had worded the questions in a manner that
yielded a response that is helpful to the research and sent out questionnaires that are clear in
terms of what they require from the respondents. The measurements that include Excel were
chosen for analysing data, which ensured validity.

Another strategy that was employed by the researcher to influence the validity of the study was
how the results were presented. The researcher chose a sample size of 35 people, which was
manageable and produced positive and consistent results that made it easy to be analysed and
presented.

The researcher also avoided the use of leading questions when preparing the questionnaires
and the responses from the respondents were measured and analysed regardless of who
answered the questions. The research study also avoided the selection bias where certain groups

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of people are omitted purposely from the sample. A trial run of the questionnaires was done to
check if the questionnaire would satisfy the researcher’s objectives.

3.9 Reliability
Reliability is a way of assessing the quality of the measurement procedure used to collect data
in a dissertation. Reliability is a necessary ingredient for determining the overall validity of the
research and enhancing the strength of the results. Martyn Shuttleworth (October 2008)
([Link])

The sample size was made up of individuals who can provide reliable answers to the questions.
The researcher utilised an appropriate medium sized sample size to ensure the data collected is
reliable. The selection of appropriate respondents also influenced the reliability of the study
because the units in the sample size were gave a fair opinion without being influenced by the
researcher or the other units of the population sample size.

The use of a questionnaire led to constant and stable results. The use of questionnaires on an
appropriate sample size was important in influencing the reliability of the study. The researcher
also made use of controls such as physically handing out questionnaires to appropriate
respondents, giving the respondent time to answer the questionnaires without pressure to ensure
that the information gathered is reliable.

The sending of questionnaires to both the creditors’ clerk who encounter the burden of
computing the withholding tax system and the debtors’ clerk who receive remittances from
customers after withholding tax has been effected will help ensure reliability.

3.10 Ethical Consideration

An amount of ethical consideration was employed when approaching the respondents of the
questionnaires. The researcher felt the potential respondents should be granted the option to
decline to answer the questionnaires if they do not feel comfortable in answering the
questionnaire. The questionnaires were optional to those who were free to respond. When the
questionnaires were handed out, the option to decline was availed and explained to the
respondents. The questionnaires were structured in a way that does not violate the personal
information of the respondents; no personal questions are included in the questionnaires.

The questionnaires do not bear the name of the respondents, which was to ensure the security
of the respondents when filling in the questionnaires. The responses on the questionnaires were
treated with confidentiality to protect the security of the respondents. Respondents were
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encouraged to answer the questionnaires and if at any point in answering the respondent felt
uncomfortable, they were free to withdraw from answering. The questionnaires will be used
solely for the purposes of the research study and will be kept in confidence by the researcher.

The researcher was bound by the mentioned ethical considerations throughout the process of
collecting data. The consent of respondents was sought first before the questionnaires are
handed over. The purpose of the study was communicated so that the respondents understood
the reasons for why their input is required.

3.11 Data Analysis

Data analysis is a process of inspecting, cleansing, transforming and modelling data with the
goal of discovering useful information, suggesting conclusions and supporting decision-
making. John Tukey (1961) defined data analysis as procedures for analysing data, techniques
for interpreting the results of such procedures, way of planning the gathering of data to make
its analysis. The data collected from the questionnaires was grouped according to the categories
of the sub problems of the study.

The researcher tried to integrate and unify the collected data. The data collected and received
was analysed using SPSS application in order to make reasonable assessments on which the
conclusions and recommendations are to be based. The researcher had to input the data into
SPSS and come up with graphs that present the data collected in the best way. The researcher
made use of tables as they aid relationships among the data to be visualised and the tables help
in comparison.

The data can be read and used with spread sheets from SPSS. The output item, that is the tables
and charts were copy-pasted into Microsoft Word for reporting. The researcher ensured that all
the data collected was analysed to ensure that the study reflects a true opinion as given by the
respondents. Data collected was first inspected and checked for errors that the respondents may
have made during completion of the questionnaires. The data collected was then to be presented
in tables and charts to aid the researcher to make proper conclusions and recommendations.

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3.12 Data Presentation
The researcher made use of bar graphs and pie charts to illustrate the data collected from the
questionnaires. Graphs provide comparison and this is the reason why the researcher feels their
use enhances the analysing of data collected. The use of diagrams and charts including the pie
charts was also employed in the presentation of data. These were an appropriate means of
presenting data because those who are analysing the data can decode them easily. Expected
results were qualitative in nature hence the research produced will be informative.

3.13 Chapter Summary

This chapter gave in detail the research methodology that was employed by the researcher in
the duration of the project. It also highlights the ways that the researcher employed during the
collection of data to ensure validity and reliability at all times. This chapter gave in detail the
target population and the sample size used to acquire data. It also lays down the foundation for
data analysis and presentation of the research findings in the next chapter.

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Chapter Four: Data Presentation and Analysis

4.0 Introduction
The past section was for the most part talking about the research methodology which was
embraced by the researcher and the fundamental reason for this part is to outline, painstakingly
dissect and completely examine the data collection results relating to the importance of ethical
standards in the auditing profession today that were gathered through the research
methodology depicted in the past section. The study information is investigated with a program
called SPSS, which is an explanatory programming program that furnishes help with factual
examinations.

4.1 Descriptive Statistics

Toward the start of the information investigation, a picture of the outcomes is given marked
by the examination of the responses subject to singular examinations of survey items in light
of the research objectives, which implies that the results of each survey item (question) is
talked about independently. The review manages ordinal information and, accordingly,
quantitative investigation might be restricted. The ordinal information has number of marks
that make up the objective request and accordingly have a numeric importance (Center,
2001). Consequently, the information investigation is an illustrative examination. Where
numerical value is analysed by the researcher.

4.2 Rate of Questionnaire response

Thirty-five questionnaires were distributed to the targeted population comprising of 10
chattered accountants, 10 accountants(uncertified), 5 academic accountants, 10 accounting
students. Twenty-eight questionnaires were received out of the thirty-five questionnaires
giving a response rate of 80%. This was because some organisations did not return the
completed questionnaires. According to Leedy (1989), a questionnaire response rate of fifty
percent (50%) is considered adequate whereas the response rate of sixty percent (80%) and
above is satisfactory. This entails that the highlighted 80% is a fair representation of the
research population.

The response rate shows how the target population answered the questionnaires. A 100%
response rate wasn’t attained because some organisations did not return the completed
questionnaires claiming that they will get back to the researcher.

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Table 2: Response rate

Respondents Questionnaires sent Questionnaires Response rate

received

Chattered 10 8 80%
accountants

Accountants 10 10 100%
(uncertified)

Academic 5 3 60%
accountants

Accounting 10 7 70%
students

Overall 35 28 80%

Source: Primary Data

Figure 1: Response rate (histogram)

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4.3 Profile of Respondents

Working experience

Cumulative
Frequency Percent Valid Percent Percent

Valid 0-5yrs 7 25.0 25.0 25.0

6-10yrs 2 7.1 7.1 32.1

11-15yrs 7 25.0 25.0 57.1

16-20yrs 5 17.9 17.9 75.0

Above 20yrs 7 25.0 25.0 100.0

Total 28 100.0 100.0

Table 3: Respondent profile

Figure 2: Respondent profile

The researcher noted that working experience has a bearing on the responses as perspectives
given are influenced by the experience of the stakeholder in question. From table 3 above the
frequency simply shows the number of questionnaires/responses and the percentages show the
extent to which the number of responses constitute the entire sample of results. From the pie
chart the groups 0-5years, 11-15years and above 20 years constitute 25% of the responses
apiece in the sample population hence the data can be analysed effectively.

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4.4 Questionnaire Response Analysis
The survey is going to be methodical in that the questions are structured to address the research
objectives to necessitate the data analysis. This study takes into account all the questions in
determining whether ethics are important in the auditing profession today, because all the
average scores of all respondents are above or below 3.0. This means that a few answers
neutrally, and therefore all the questions are relevant for this study. All the questions are
relevant, because they all have a certain value given by the respondents.

The questions in the survey as established earlier are structured to address the research
objectives. It is therefore necessary to recap the research objectives:

 To analyse the causes of corporate scandals over the last decade.

 To establish the role and mandate of the auditor today.
 To evaluate the impact of ethical failure on the public.
 To establish the need for full compliance to ethical standards in the profession today.

4.4.1 Awareness of Corporate scandals over the last decade

[Link] Objective: Analyse the causes of corporate scandals in the profession over the last decade.
The question sets the basis on which the objective can be analysed as the awareness of the
corporate scandals is the analysis point as these scandals over the last decade have invariably
put the profession into disrepute.

Are you aware of the corporate scandals

Cumulative
Frequency Percent Valid Percent Percent

Valid NO 1 3.6 3.6 3.6

YES 27 96.4 96.4 100.0

Total 28 100.0 100.0

Table 4: Respondents’ awareness of corporate scandals over the last decade

The table shows that twenty seven respondents are aware of the corporate scandals and only
one respondent is unaware. This translates to 96.4% of aware respondents in the survey and
3.6% of unaware respondents in the survey population. It can be therefore concluded that the
respondents are aware of the subject matter and the information they are going to provide in
other questions can be used in this research.

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4.4.2 Causes of the Corporate scandals
[Link] Objective: Analyse the causes of corporate scandals in the profession over the last decade.
This was an objective question as the researcher seeks to establish the causes of the scandals from the
responses provided by the respondents. This is the climax of the first objective and the responses got
therewith will enable the researcher draw a conclusion as to what the causes of corporate scandals are.

This was an objective question and various responses were cited so to quantify the various responses
was quite cumbersome on the part of the researcher. However the researcher managed to analyse the
responses and he deduced that 68% of the responses pointed the causes of the scandals to ethical failure.
This 68% comprised of chattered accountants, accountants(uncertified). The remaining 32% gave
various answers which were somewhat technical such as that the auditor held financial and non-
financial interest in the client. The 32% comprised of academic accountants and students this is due the
fact that these stakeholders implored academic reasoning in their responses.

4.4.3 Understanding of the role of auditing in Corporate scandals such as Enron,

World Com and the recent KPMG scandal.
[Link] Objective: To establish the role and mandate of the auditor today.
The thrust of this question is to establish the second objective stated above culminating to the
issue in question which is the issue of ethics in the profession. The respondents must
understand the role of auditing in such scandals so as to set the basis on which ethics are
important in the auditing profession today.

Descriptive Statistics

Stakeholders N Minimum Maximum Mean Std. Deviation

Accountants Role of auditing 10 2.00 2.00 2.0000 .00000

Valid N (listwise) 10

Academic Accountants Role of auditing 3 2.00 2.00 2.0000 .00000

Valid N (listwise) 3

Accounting Students Role of auditing 7 2.00 2.00 2.0000 .00000

Valid N (listwise) 7

Chattered Accountants Role of auditing 8 2.00 2.00 2.0000 .00000

Valid N (listwise) 8

Table 4.1: Respondents’ understanding on the role of auditing in the corporate scandals.

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Table 4.1 shows the mean and the standard deviation. A standard deviation says something
about the spread of responses around the mean. A small standard deviation is good, while it
means that there is a low spread of answers around the mean. Table 4.1 shows that the standard
deviation of almost all question is below 1, this is considered as low in statistical research.
Thus, the spread is low, which is good meaning that this research finds strong evidence that
supports the first objective of the study. The stakeholders are all aware of the role auditing in
the corporate scandals based on the findings presented in Table 4.1. This understanding is key
as this is the green light that the researcher seeks for further examination or questioning of the
respondents.

4.4.4 Role of auditing today

[Link] Objective: To establish the role and mandate of the auditor today.
In this question the researcher sought to establish the role of the auditor in the profession
today. This question marks climax of this objective as these responses will be the bedrock on
which the researcher will answer the question on what the role of the auditor then is amid
corporate scandals seen over the last decade.

The researcher got a unanimous response from the respondents as the respondents cited in
different ways of course that the role of the auditor today is to provide reasonable assurance on
the financial statements to aid users of such statements make informed economic decisions.
The respondents all gave this response in different ways as this was an objective question which
required input from the respondents. This is attributed to the target population the researcher
chose. The respondents in the survey all have good appreciation of auditing and its
fundamentals hence that is why the response on this question pointed to the basic function or
objective of auditing.

4.4.5 Ethical failure on public trust

[Link] Objective: To evaluate the impact of ethical failure on the public.
The researcher’s objective is to evaluate the ethical failure on the public. The reason for that is
to see whether ethics have a bearing on the public and her perception. This is necessary because
auditors provide assurance to “users” of financial statements who are members of the public.

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Ethical failure compromised public trust

Cumulative
Frequency Percent Valid Percent Percent

Valid Neutral 1 3.6 3.6 3.6

Agree 12 42.9 42.9 46.4

Strongly agree 15 53.6 53.6 100.0

Total 28 100.0 100.0

Table 4.2 Ethical failure impact on public trust

Figure 3: Ethical failure compromised public trust

Table 4.2 shows that there wan 1 neutral person who constituted 3.6% of the responses in the
sample, 12 people agree constituting 42.9% of the population, 15 people strongly agree
constituting 53.6% of the population. The standard deviation is 0.577 meaning that the
responses are not divergent all respondents generally agree that ethical failure compromised
public trust in the last decade. Figure 3 is just a graphical illustration of the table.

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4.4.6 Necessity of the enforcement of ethical compliance to repair the damage ethical
failure caused the profession.
[Link] Objective To establish the need for full compliance to ethical standards in the profession today.
From the preceding objective it was established that ethical failure indeed compromises public
trust. The researcher in this section therefore seeks to see whether respondents are
contemplating the enforcement of ethical compliance in light of the issue of ethics raised in his
research.

Table 4.3 Grouped ethical considerations

The researcher for this question saw it fit to group the responses as the enforcing of ethical
compliance affects them in their respective capacities in the profession. The table hence
shows a low spread of responses indicated by the standard deviation. The minimum and
maximum column represents the responses denoted in values ( Strongly disagree 1,
Disagree 2;Neutral 3; agree 4, strongly agree 5). From the above table it then follows that
from the stakeholders with 0-5yrs experience there was only one who was neutral, and the
rest of the other classes of working experience had a minimum of 4 meaning that responses
were varying from agree to strongly agree.

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4.4.7 How ethical failure has impacted the public perception of the auditing
profession today.
[Link] Objective To establish the need for full compliance to ethical standards in the profession today.
This was an objective question aimed at getting how ethical failure has impacted the public’s
perception of the auditing profession given the scandals that have occurred over the last
decade.

The researcher noted some various responses and 72% of the responses pointed to a sense of
distrust in auditors. This means that the respondents felt that the public have a sense of
distrust of auditing justified by corporate scandals which are the order of the years over the
last decade. The remainder of 28% then points to various reasons which cannot be
generalised.

4.4.8 What measures have been put in place by the regulatory bodies such as IFAC to
ensure ethical compliance.
[Link] Objective To establish the need for full compliance to ethical standards in the profession today.
The researcher wanted to get feedback from the respondents on the measures set by the
regulatory body. The feedback has a dual thrust the first being whether the respondents are
familiar with such measures and whether such measures are adequate.

The results show that the respondents are familiar with the code of professional conduct as all
the respondents pointed this measure out throughout their responses.

[Link] Adequacy of measures set by the profession

Table 4.4 Adequacy of measures set by the profession

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The researcher for this question saw it fit to group the responses as the enforcing of ethical
compliance affects them in their respective capacities in the profession. The table hence shows
a low spread of responses indicated by the standard deviation. The minimum and maximum
column represents the responses denoted in values ( Strongly disagree 1, Disagree 2;Neutral
3; agree 4, strongly agree 5). From the above table it then follows that from the stakeholders
with 0-5yrs experience there was only one who was neutral, and the rest of the other classes of
working experience had a minimum of 4 meaning that responses were varying from agree to
strongly agree.

4.4.9 Adequacy of training of accountants in public practice on ethics

The researcher in this question seeks to assess whether accountants in public practice are
trained in the subject of ethics as auditors (accountants in public practice) are implicated in
corporate scandals it then follows to enquire whether auditors are adequately trained on the
subject of ethics.

Table 4.5 Adequacy of training of accountants in public practice on the subject of ethics

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From the table above it can inferred that from the experience of stakeholder groups the more
senior stakeholders agree that there has been adequate training on the subject of ethics while
the younger stakeholder agree as well but some neutral responses were noticed by the
researcher. From the mean column the younger stakeholders are generally neutral as those who
have 0-5yrs experience have a mean 3.29 which means they are neutral so are those who
have 6-10yrs experience have a mean of 3.50. The older stakeholders have a higher means of
4.43, 5.00, 4.86 which means they are of the opinion that accountants in public practice have
been adequately trained on the subject of issues.

4.4.10 Opinion on the importance of ethics in the auditing profession today.

The researcher in this question sought to find out whether ethics are important amidst the issues
raised in questionnaire. The question coincides with the benefits associated with ethical
compliance in the profession as a body.

The respondents all unanimously came to the realization that ethics are important in the
auditing profession and cited a plethora of benefits which will frame the recommendations of
the researcher in the following chapter.

4.4.11 Recommendations of improvements on ethical compliance

The researcher in this case sought to get an input of the respondents on the possible
recommendation on improving ethical compliance.

The researcher noted amongst the vast responses that the emphasis was on enforcing the code
of ethics through harsh penalties to those who are found to be non-compliant.

4.6 Summary
This chapter detailed the presentation and analysis of data obtained from the field through the
use of questionnaires and interviews. The data was presented using bar charts and tables and
analysed using measures of central tendency and measures of dispersion. The analysis of the
data revealed that information technology is transforming the audit. Also the results of the
interviews are in line with the expectations on forehand. The following chapter will highlight
in detail the findings from the analysis and suggests recommendations.

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Chapter Five: Recommendations and Conclusions
5.0 Introduction
This part gives a short outline and composed conclusions got from the examination. The
proposals talked about in this part are not exhaustive but rather will help arrangement policy
makers and different such as regulatory bodies to uphold the issue of ethics in the auditing
profession today.

5.1 Findings and Recommendations

The profession as established earlier has been implicated in a lot of corporate scandals over the
last decade hence the researcher found out that the reason for that is the failure of auditors to
uphold a high standard of ethics. This then becomes more apparent that ethics are indeed
important in the auditing profession today. Below are some of the ways in which the
importance of ethical standards can be emphasized and enhanced.

5.2 Role and responsibility of regulators should be clearly defined

Regulators ought to characterize the part and obligations of the reviewers and administration.
There is need to set up free oversight bodies to screen crafted by review firms as has been done
in different nations, for example, the United states, Canada, South Africa and the United
Kingdom. The bodies will require review firms that desire to do reviews of open organizations
to enlist with the individual oversight expert. The oversight specialist would be entrusted with
reviewing the records of reviews performed to guarantee that expert guidelines have been met,
examining the administration of the bookkeeping firms to build up how accomplice
compensation is built up, how the firm guarantees it stays autonomous, what customer
acknowledgment forms are taken after, and how the firm surveys whether non-review
administrations to a review customer may influence the discernment or reality of freedom.
Aside from the over, the oversight specialist ought to have the capacity to issue orders keeping
a review firm from tolerating new open reviews for a timeframe, suspend particular review
accomplices from driving commitment until the point that they have been retrained or met some
other standard and obviously the distribution of their finding ought to significantly affect a
review company's capacity to contract staff or secure new customers.

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Standard setters in different wards ought to guarantee that there is add up to appropriation of
International Financial Reporting Standards (IFRS) and International Standards on Auditing
(ISA) subsequently get rid of national models, that is, to guarantee add up to joining. The
necessity by the standard setters, of the most noteworthy quality money related revealing by
organizations will guarantee that the examiner's part isn't bargained and that general society at
last gets solid and precise data.

Regulators need to perceive that supervision of review firms, is separated from everyone else
not adequate to enhance review quality. There is have to explore and rebuff banks, business
organizations and different organizations that delude financial specialists through their inability
to work in a ethical and autonomous way.

5.3 The Code of Professional conduct should be enforced

The profession has ethical guidelines that form a framework on which the auditing practice
should be done. The IFAC body should enforce this framework by delegating review authority
to bodies that may be formed by national accounting bodies in different jurisdictions across the
board. These bodies will formed to regulate auditors and investigate any ethical violations
committed by auditors. For example in South Africa there is the Independent Regulatory Body
of Auditors (IREBA). This will be effective as these bodies will be in tune with what happens
in that respective locality with respect to professional and more importantly ethical issues.

In addition to the formation of these ancillary bodies, these bodies should take certain steps by
motivating members of the public through rewarding whistle blowers and imposition of heavy
penalties on implicated individuals.

5.3.1 Whistle blowers

Misrepresentation and collusion with those that are responsible for the internal of an
organization is difficult to recognize in view of the think endeavor to cover it up. Whistle
blowers are the in all probability device in giving the misrepresentation a chance to out away
from any detectable hindrance. There must be enactment that will energize and secure the
whistle blowers. Such enactment could incorporate an arrangement to ensure that the whistle
blower is shielded from losing his/her activity and furthermore offering prizes to the whistle
blower.

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5.3.2 Harsh Penalties
In the event that harsh penalties are presented for demonstrations of extortion by those that are
accused of corporate administration, it could bring about a decline in such instances of
misrepresentation. Auditors would be less inclined to submit misrepresentation on account of
the dread of being detained for quite a while.

5.4 Training of accountants

The subject of ethics should be included in the curriculum of the accounting undergraduate
degree program. This is after a realization that NUST does not have an ethics module designed
for students who are potentially the future accountants in public practice. Training will instill
a certain value system as students progress to reach the stage where they are certified as public
accountants who will be compliant with ethical standards.

5.5 Auditor independence should be addressed.

Auditors should be independent and must act with integrity, objectivity, professional
competence and due care. Provision of non-audit services can sometimes lead to the loss of
auditor independence. This is especially true if the auditor derives most of his income from
the particular audit client. Ways to minimise the loss of the audit independence could be:

 Auditors should not perform work where it would result in them auditing their own
work since it results in a self-review threat.
 Employment by the company of individuals from the audit team should be approved by
the audit committee and disclosed.
 The auditor’s primary relationship should be with the shareholders and not
management.
 Audit committee should regularly review the auditor’s relationship with management.

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5.5 Conclusion
This part has taken a gander at the suggestions that can be actualized so ethical standards can
be upheld. The proposals are not comprehensive and more can be added to them to increment
ethical standards. In the event that the above proposals are to be taken up it could prompt more
ethical awareness and compliance.

Broad activity is required both at national and global level to encourage an adjustment in the
ethical culture, instead of legitimate limitations to keep another repeat of corporate scandals. It
requires a difference in state of mind and an extensive time of consideration regarding revealing
and administration issues by all members if outrages are to be halted.

Ethical standards are thereby important in the auditing profession today as auditors are the
custodians of public trust. Ethical considerations must be the centre of the auditing practice and
rigorous training should be done and measures set to enforce compliance as auditing is very
important and necessary in the complex business environment we live in today.

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