Professional Ethics of Auditing
In the case at hand, Gilbert is guilty of violating several different ethical obligations that apply to auditors per the Code of Ethics applicable to the profession. Four of these ethical violations include: failure to disclose as required by law, entering into the partnership, the fee arrangement and failure to maintain his clients confidentiality expectations.
An auditor is required to disclose of any information that they know they are required to disclose by law. In the case at hand, Gilbert was made aware that one of his clients, Grandtime Company, had a building that was carrying a significant and undisclosed lien. As an auditor, Gilbert is required by law to disclose this lien by reporting it. His failure to do so is in violation of the Code of Ethics.
Gilbert's business partnership with Bradley, a Chartered Property Casualty Underwriter, is an unethical business formation. The reason why this business set up is unethical is that working with a CPCU creates the potential for bias in Gilbert's auditing work. For example, Gilbert will be pressured to conduct an audit favorable to a client because this is in the best interest of his partnership with Bradley. This potential for bias is heightened with the fifty-fifty stock split. Thus, both the partnership with Bradley and the financial arrangement are unethical in that they create a potential for bias in violation of the Code of Ethics.
Finally, Gilbert has an ethical obligation to maintain his client's confidences. Although Gilbert has a legal obligation to disclose of Goodtime Company's failure to disclose their lien, this must be done in the form of the audit report. Telling his business partner without first confronting his client is in violation of Gilbert's ethical duty to preserve the confidences of his client.
Bibliography
Duska, Ronald F., Duska, Brenda Shay. Accounting Ethics. New York: Blackwell Publishers, 2003.
Wieland, Josef. Standards and Audits for Ethics Management Systems. New York: Springer-Verlag, 2003.
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