Corporate Governance and Other Non-Attest Services

1 Corporate Governance and Other Non-Attest Services Whether performing accounting or non-attest roles, the accounting profession requires high ethics and integrity. An accountant will provide the best services to humanity if they approach their role from the point of intrinsic ethical commitment rather than fulfilling certain ethical or legal requirements. An accountant should aspire to do good to the parties relying on their services without regard their service as an external prerogative but as an individual duty to others (as defined by deontological ethics). Arguably, an accountant should be independent in appraising actions professionally and realistically and avoiding drifting to the selfish rationalizations that benefit them as individuals.

Jennings’ Statement Jennings' statement means that a company's ethics level determines whether the organization will achieve good for the public. According to Jennings, companies set high standards that workers need help to attain.

Buy this excellently written paper or order a fresh one from ace-myhomework.com

2 Hence they resort to unethical routes to attain the standards (Mintz & Morris, 2014). For instance, Jennings blames most unethical behaviors on pressure to maintain high profits for a company. Due to pressure to deliver high profits, accountants report wrong profits in the financial statements. When workers are pressured to attain consistent growth even when they have already worked very hard to attain the company's level, they mostly resort to unethical shortcuts to perform according to the management's wish. However, Jennings contends that the companies may adhere to the principles of GAAP yet engage in rationalizations and legalisms that erode ethics in workers (Mintz & Morris, 2014).

In organizations with low ethics, workers are likely to be pushed to behave in an unethical way to meet the required results. Jennings describes this situation as fear and silence (Mintz & Morris, 2014). Low organizational ethics may render workers victimized because the management views them as agents of negativity. Workers at the lower end may be more concerned with their jobs than ethics. As such, they remain loyal to their managers or the CEO and fail to whistle even when they witness contravention of ethical principles. The case of Tyco CEO best explains the impact of fear and boss loyalty on a company's ethical environment.

In retrospect, company culture has a great impact on its ethical values. Starbucks, for instance, has built a culture of honesty, respect, and integrity, making it one of the most ethical corporations on earth (Mintz & Morris, 2014). It is the board of directors that defines a company's culture by defining the company's values and ethical standards. When the board of directors is weak, conflict of interest may ensue, eroding ethics because every interested party wishes to do things as they please. As such, ethics in a company relies on an ethical culture that encourages integrity, honesty, and service to customers and the community.

Roles of Board of Independent Directors

3 For a company to be listed on a national stock exchange, it must have a majority of independent directors who play many roles, including the following. First, the independent directors serve as watchdogs for shareholders. Through their positions in various committees, including the audit committee, the independent directors are the watchdogs who identify any anomalies in the financial statements and report them to the executive for action. Secondly, independent directors serve as advisors to the board of directors, and the executivIndependentent directors are highly informed parties whose appointment as directors is based on meritocracy (Mintz & Morris, 2014). The directors serve as advisors who advise on crucial matters to create shareholder value.

The independent directors are responsible for ensuring that the company does not drift from its ethical commitment to engaging in degrading activities. The other responsibility of independent directors is to ensure that the company follows a good governance policy and that the company's affairs are transparent. Incidentally, in cases of conflict of interest, the independent directors serve as moderators to bring harmony and understanding among the conflicting interests.

Chapter 4 According to Schmidt (2012), auditors are expected to have no interest in companies whose financial statements they are mandated to look into. Auditors are expected to give honest and unbiased opinions on the companies they audit. When auditors cooperate with the company's executive team, they are expected to give an unbiased opinion and are regarded as biased and selfish. In cases where auditors collude to give a false or biased opinion, they are considered impaired and unfit to conduct auditing.

Advise on how to Structure Business Transactions

4 When businesses form accounting functions, they expect that the function will help the executive team to understand how to structure business transactions. Thus, an auditor who offers counsel on structuring business transactions for some accounting treatment by GAAP is acting within the ethical principles defined by AICPA. The principle that guarantees the AICPA offers the advice is called due care. The duty of care provides that an AICPA should possess all the technical expertise to structure business transactions according to the requirements of GAAP (Mintz & Morris, 2014). However, structuring the business transactions for special treatment by GAAP should not violate the moral and legal provisions defined by GAAP. In addition, the structuring done by the AICPA should not hide transactions of the business because hiding business transactions is regarded to be an offense by GAAP. Structuring transactions per se to benefit from is considered a duty of the AICPA. Advice on Accounting Treatment The AICPA code is very strict on the roles of an auditor regarding a client. According to Mintz & Morris (2014), an auditor is not supposed to act as if he/she is part of the client's management. By advising the client on accounting treatment, the auditor acts as a team member of the business's management. If the auditor gets involved in the business, what would be the reason for auditing the business? Getting so involved with the business to the point of offering such in-depth advice would imply that the auditor is doing the accounting work at the business.

In that case, the auditor is auditing himself when auditing the business.

The way the auditor can advise the client is to inform how to structure business transactions to conform with the requirements of GAAP. Following the critical role of the auditor in the business, the management may deem his/her advice compelling and execute it to impress the auditor. In that case, the auditor will not find fault or may care less to audit the

5 business's books of account. If that happens, the auditor will be said to have lost credibility. The rest may be considered an intrusion, raising serious questions about the auditor's integrity, honesty, and credibility.

Selecting the Senior Accounting Personnel The AICPA provides that no CPA firm should act or seem to act in a manner suggesting that it is designating a person or persons who possess good skills and knowledge to serve as internal auditors (Mintz & Morris, 2014). The AICPA code aims to improve the credibility of auditors by ensuring that they act independently from their clients. Suppose the auditor selects the individual who will serve as a senior accountant. Then, by extension. In that case, the auditor will work for the business as an accountant. By determining who will be the senior accountant, the auditor may be viewed as having an individual interest in the business, rendering his opinion of the business's financial statements unreliable. For instance, if he chooses the senior accountant due to his competency, how can he term his financial statements incredibly? If he terms the financial statements as incredible, then the business owner will think the auditor selected an incompetent person to work as a senior accountant. Thus, the auditor should avoid selecting the client's accountant.

Ethical Concerns about Transmitting Audit Information Electronically Outsourcing auditing to offshore companies is a good move to alleviate auditors' threats, such as familiarity threats, undue influence threats, self-interest threat, and self-review threats.

However, the transmission poses threats to confidentiality, honesty, and credibility. The information transmitted to offshore auditors may find its way into the wrong hands, which may jeopardize the transmitting company. The threat of honesty also exists. The auditor may need to provide an honest view of the company's financial statements because of its far distance from the

6 jurisdiction of the company. Incidentally, the issue of integrity arises. The opinion of offshore companies may need to be more credible and reliable because they will only audit provided information.

Reference Mintz, M., Morris, E. (2014). Ethical Obligations and Decision Making In Accounting. McGraw Hill Education.

Schmidt, J. J. (2012). Perceived auditor independence and audit litigation: The role of non-audit services fees. The Accounting Review, 87(3), 1033-1065, https://www.jstor.org/stable/23245639.

Effective corporate governance is important in ensuring that a company operates in a responsible and ethical manner and that the interests of all stakeholders, including shareholders, employees, and customers, are taken into account.

One area in which corporate governance can be strengthened is in the use of non-attest services (NAS) by audit firms. NAS refers to consulting and other advisory services provided by audit firms to their audit clients, in addition to the traditional financial statement audit.

There are several potential risks associated with the use of NAS by audit firms.

For example, there is a risk that the provision of NAS could compromise the independence and objectivity of the audit firm, potentially leading to conflicts of interest or the perception of bias. There is also a risk that the provision of NAS could distract audit firms from their core responsibilities, such as conducting a thorough and objective audit of the company's financial statements.

7

To address these risks, some jurisdictions have implemented restrictions on the provision of NAS by audit firms to their audit clients. For example, the Sarbanes-Oxley Act in the United States prohibits audit firms from providing certain types of NAS to their audit clients, including bookkeeping and financial information systems design and implementation.

In addition to regulatory restrictions, companies can also take steps to strengthen their corporate governance practices in relation to the use of NAS. This may include implementing internal controls and processes to manage the use of NAS, ensuring that the audit firm is adequately independent and objective, and disclosing information about the use of NAS to stakeholders. By taking these steps, companies can help to ensure that the use of NAS by audit firms does not undermine their overall corporate governance practices.