Ethical Threat to Principles of Professional Ethics

Ethical Threat to Principles of Professional Ethics

Name:

Student Number:

Course:

Date:

Ethical threat to principles of professional ethics

There are various ethical threats that may inhibit compliance with the fundamental principles of professional ethics. One of these is the threat of intimidation which occurs when a client harasses the auditor in order to give favorable audit reports. For instance the client may use audit fees as leverage for getting the auditor to act or report in a favorable manner hence losing objectivity. Intimidation can occur if the client threatens to withhold the audit fees if a qualified report is issued. If the audit firm is highly reliant on the client financially or is facing financial constraints, it may opt to issue a wrong report in favor of the client in order to ensure that the fee is paid (Bode, 2008).

Another form of intimidation is when there is a family member working for the client where it may threaten to sack him/her if an unfavorable audit report is issued. The auditor’s family members may also be getting business from the particular client where a threat is issued to stop such business tenders if a qualified report is issued. When this happens, the auditor may be convinced to issue wrong reports in order to safeguard the welfare of the family members and avoid their sacking of business termination (Legislation.gov.uk, 2017).

Intimidation can also occur if the client threatens to terminate the contract and hire other auditors if a qualified report is issued. The client may also be influential to other clients that the auditor gets business from and can threaten to influence them to terminate their contracts as well. This is a form of intimidation that can lead the audit firm giving in to the intimidation and issuing the wrong reports in order to remain in business. Such intimidation is common with auditors who rely on specific clients who are interlinked or in the same interest where acting against their will can result to complete withdrawal of business (International Federation of Accountants , 2017).

The threat of intimidation can also work when there is a financial relationship between the audit firm and the client which could bring about adverse effects. A good example is when the audit firm has advanced the client a loan that is to be repaid. In this case, the client can threaten not to repay the loan if the auditor issues a qualified report. Such intimidation can lead the client to issue a qualified report in order to avoid losing the money that has been advanced to the client (ACCA Global , 2017).

Significance of intimidation threat

The threat of intimidation is highly significant and can result to auditors filing to comply with the principles of professional ethics. Intimidation of auditors interferes with their independence where they can no longer give independent opinions on the financial statements issued by the company. If the auditor gives in to the intimidation, they would end up issuing wrong reports such as qualified reports that are meant to be unqualified. This is risky given the fact that audit reports are highly relied on by third parties in making decisions regarding the particular company. Intimidation threat also has a negative impact on the audit profession as it results to third parties losing confidence in the audit reports if the auditors can be pressured into issued wrong reports. This should however not be the case and auditors should not give in to the intimidation by clients and issue wrong reports (ACCA Global , 2017).