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Whistle Blowing In Auditing Essay

2426 words - 10 pages

Question 1

Introduction
At the start of this century, unprecedented collapses of Enron and WorldCom have sparked heated world discussions over corporate whistle-blowing. In light of this, legislations and professional codes of conduct are implemented to provide framework on ethical and financial decision-making particularly for auditors. This essay covers prerequisites for an effective corporate whistle-blower hotline, measures to avoid potential pitfalls, as well as analysis on benefits and drawbacks of having a whistle-blower hotline.

Whistle-blower Hotline
What is it?
By incorporating the concepts of whistle-blower of Alford (2001, p.17) and Bok (1980, p.277) into auditing, whistle-blower hotline is a communication system which allows individuals to sound an alarm within the framework of the organization, aiming to spotlight suspected accounting frauds, mismanagement or internal control failures which threaten public interests with convincing evidences.

Why is it necessary?
Whistle-blower hotline helps alleviate the impact of fraudulent acts before it is too late. When Cynthia Cooper revealed US$3.8 billion of fraud in internal audit, WorldCom declared bankrupt with US$45.98 billion of liabilities, 20,000 employees became jobless and investors lost over US$180 billion. (Soltani 2007, p.560) If there had been a hotline, outcome would have been less devastating to stakeholders.
It also provides a platform for employees to voice out. Newcomers worry that seniors will neglect their opinions due to lack of experience. Ethical dilemma is “a situation where a decision must be made about appropriate behaviour”. (Michael 2011, p.131) Employees facing ethical dilemma fear to risk their career for truth. Hence, a hotline provides encouragement to raise concerns and promotion of transparent organizational culture.

Prerequisites to the Audit Commission
Engaged in Whistle-blower Hotline
Uphold Qualities of Internal Auditors
Under Rule 101 of American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct, and A Conceptual Framework for Auditor Independence issued by Independence Standards Board (ISB), auditors have to be independent in fact and appearance. (Soltani 2007, p.206) Independence in fact implies that auditors have to maintain impartiality. Independence in appearance relies on how confident the public regards work and performance of auditors as independent.
In addition, Rule 102 of AICPA Code requires auditors to uphold integrity and objectivity in professional work. Auditors with these values avoid conflicts of interests during investigation on whistle-blowing claims. Hence, internal auditors, particularly interviewees, should attend trainings to understand how to apply their qualities in performing appropriate procedures.
Monitor and Evaluate Periodically on the Hotline
Regular evaluations should be carried out to ensure the hotline complies with objectives and standards of Audit Commission. (Grant...

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