Name: Ashutosh Goel

Student ID: 100091

Course Title: ACF 100-BE

Course Teacher: Kushal Kataria

Title of the Essay: After discussing briefly the primary role of a company auditor, consider why ethics is important to auditors. Evaluate how significant the contribution of auditors is to the effective corporate governance of large Indian companies.

Word Count: 1358 Words

Date of Submission: 06/01/2011

Business Environment Essay

After discussing briefly the primary role of a company auditor, consider why ethics is important to auditors. Evaluate how significant the contribution of auditors is to the effective corporate governance of large Indian companies

A qualified person, who inspects the accounting records and the practices of an organization, is the basic definition of a Company Auditor. In financial accounting, an audit is categorized by the self-governing evaluation of the justice by which a company's financial statements are presented and prepared by and to its supervisor. This task is largely performed by the trained, experienced, self-governed and intent persons, known as accountants or auditors. Auditors are on the whole very informed with every characteristic of auditing and they in turn matter a report known as auditors report. Since, the auditor acquire immense knowledge in their company and the marketplace in which the company operates, auditors are highly practiced to grant information outside their part of auditing to the company. Other services that they can offer are successions planning, management consulting, planning taxes and deregulation preparation. There are generally two types of auditors: External Auditors: These auditors visit from outside the company to access and weigh up the financial statements of their clients or to carry out essential evaluation than necessary. They are usually appointed for a time span of 1 year. Internal Auditors: They are hired by the companies as employees to access and assess the internal direction necessary in the company. They testify directly to BODs or the highest management. They are answerable to have a through view on related issues of the frauds and conflicts that are visible in a companys record. As a common statement, audits are always supposed to be an independent evaluation which includes few degrees of both quantitative and qualitative analysis; whereas a judgment requires more dependent and more counseling approach. The reason being, the purpose of a judgment is to assume something or calculate the worth for it. Although the process producing a judgment may involve an audit as an independent professional, its aim is to give a measurement instead of expressing an opinion for the accuracy of statements or the level of excellence in their performance.

Ethics may be defined as the actions showed by an individual on himself to ensure his continued survival across the dynamics. It is a personal thing. A person individually performs a task according to his style of work; then he considers himself ethical because he does that with a reason. Ethics role in accounting is a law for all the accountants to follow certain regulations for conducting their jobs of accounting in a justified way. It is followed just to aid public reliance in their accounting. There are a set of regulations which have been set by the AICPA (he American Institute of Certified Public Accountants) for the issue in publics accounts. The IIA (Institute of Internal Auditors) and IMA (Institute of Management Accounts) as well have presented their specific code of ethics to pound the set of ethics in accounting as a field. It is the duty of every professional accounting organization to direst all the members of the organization to follow the fixed set of ethical paths. The most common and searched question that has been asked to the accounting professionals is whether ethics can be successfully taught. The professionals will face the answer at one of time or the other in ones life span as there is no person in this entire world who came with ethics in their soul or mind. So, we can argue that it is the environment, in which the person grew up or spent his past in, that should be held responsible for the ethics embedded on that person which he is following today. We can see that it is the same case for every accounting professional; the codes of conduct which the professional organization requires all the members to build an ideology of ethics in them. Ethics are a major need of today in the accounting as profession. Accounting ethics in the field of accounting refers to the guiding principles (it contains decisions and ethical values) that officials are required to follow while preparing the accounts. Similar to the officials in law or medical field, the accounting officials also need to strongly stick to the ethics which have become a rule in accounting. The companies which opt for the services of an accounting official do not only rely on his skills and abilities but also on his professional uprightness. People using such accounting service from the skilled officials depend on their officials capability to take part in decision making and also depends on the ethics followed. It is because of the above reasons which have made the accounting officials to develop a code of conduct which is required to be followed by all the accountants. The fundamental nature of the ethics is defined by the way it is used. The ethical values or code of conduct entails an accounting official to maintain his high degrees of self discipline which makes it greater than legal boundaries. Whenever an accounting official is opted as a member of organizations such as IMA, IIA and CIA, they are expected to strictly work by the code of conduct and ethics followed.

The accounting officials are to be held responsible to stick to their code of ethics, in other words it is the role of ethics in accounting, which does not let anyone lose confidence on their career. The fundamental nature of ethics in accounts can be found in the maintenance of their reliability and aims in the career. Corporate governance is a deposit of processes, laws, institutions, etc. affecting the way an organization is being directed, controlled or asked to follow. Another major component of corporate governance is the relationship maintained with most of the stakeholders of the organization and the targets for which the organization is concerned about. The most important stakeholders are the shareholders, board of directors, customers, creditors, employees, suppliers, and the community with a large share. A good corporate-governance practice allows the management to assign resources more efficiently, which develops the opportunities for the investors to obtain a better rate of return from their investment. Finally, the leading indices show the developing countries which have good governance structures without fail surpass the poor countrys corporate-governance structure. Thus, in a competent capital market, investors will give their money to the firms with better corporate-governance structures because it has low risks and the more chances of receiving higher returns. At macro level, if organizations in developing countries receive investment, they will help growth in the local economy. If they are not able to attract equity capital, then they are condemned to remain on a small and less efficient scale, and they will not be able to stimulate growth in their own country. Good corporate governance profits developing countries in a number of ways. As per the study, good corporate-governance practice can reduce the chances of major financial crisis and the also reduces effect of the financial crisis if occurred. Research also shows that the well governed organizations are valued considerably higher than the organizations with flawed corporategovernance practices followed. Good corporate governance also helps in reducing the inefficient behavior and results in over passing the difficulties to the growth in organizations productivity. Corporate governance plays a vital role in reducing corruption from the organizations management because the officials will have to face strict punishments if the laws are flawed. Reduced corruption drastically enhances the organization's developmental prospects as it creates a good image or good will for the organization. What happens when the company does not follow the ethics or the corporate governance? The answer lies in the example of scandal filed in the export transaction between the ITC and Chitalia group of industries in the year 1996. ED had started the FERA (Foreign Exchange Regulation Act) investigation in this matter and exposed their scam from the year 1990 to 1995. The violations were recorded to a scam of 80 million us dollars. If the company auditors had not forgotten their ethics or followed the corporate governance then both the companies would not

have lost their market value and incurred losses. Due to the same reason ITCs chairman (KL Chugh) along with many directors of Chitalia were detained but released on bail later.

Bibliography
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