A certified public accountant, or CPA, is a practitioner in accounting who is responsible for maintaining the integrity of accounting principles. This case study demonstrates that I oversee Oklahoma Natural Solutions’ (ONS) yearly audit, which is carried out by an auditor at an accounting company in Oklahoma. Because the accounting structure of ONS is often complex, the business is listed, and a thorough investigation is conducted (Chen et al., 2020). A better understanding of the audit process and daily validation are necessary for listed businesses, and the complexity of the company makes it possible to learn about fraudulent activity in a number of ways. This calls for the implementation of extra internal controls. of the AICPA.
AICPA Code of Professional Conduct
The basis for upholding professional and ethical obligations in companies across all industries is provided by the Code of Conduct AICPA. The CPA has made a series of pronouncements that are included below. They provide accountants with the tools they need to maintain their integrity in their day-to-day jobs, in addition to helping them comprehend the significance of adhering to ethical norms (Jenkins et al., 2020). The audit team’s initial questions concerned whether the first quarter’s sales numbers were noticeably more significant than the prior quarter’s sales figures and what was shown on the balance sheet for the years that followed. Ensuring that the independence of the audit is restricted in its involvement in the audit process, confined to portions of the resultant financial results, is one of the primary functions of the AICPA.
According to the case study, the reviewers had asked to speak with the firm’s CFO in order to offer more details about the unexpected rise in earnings since the first quarter. The specific audit structure and independence have been significantly influenced since the CFO’s conclusion that Q1 sales have indeed expanded and there are no shocking CICA equivalents in revenue every day (Jenkins et al., 2020). The audits’ defined framework standards and moral guidelines were just improperly executed.
The Internal Control Weaknesses
Each firm has different internal controls, as does the extent of these controls. Nonetheless, because of their scale and the sheer number of moving components, publicly listed corporations need to have sophisticated internal control over the things that matter most to small firms (Jenkins et al., 2020). Several internal control firms meet all year long, including those that oversee the phases of collection and payment approval, as well as restricted access to accounting services (Chen et al., 2020). Since all businesses are listed, including ONS, the organization is under pressure to boost the number of listings in the CFO category since it owes shareholders.
According to a case study, “Patrick Fred and Alexander Fred recommended that Ms. Jones be innovative and assertive in the revenue pool during a recent closed meeting. Ms. Jones claimed to know what was to be done. The superior quality of ONS shares in relation to those of other market-cap businesses of a similar size (Jenkins et al., 2020). It should be forbidden for the CFO to write newsletters that have an immediate impact on P&L entries and the journal as a whole, with the primary goal being to ensure that the company’s overall financial statements are accurate. This is the evidence of poor internal control that I observe in top management and ONS.
Pressure from the board of directors and management to improve the company’s financial statements relative to registered mortgages is known as financial statement fraud. The internal control system of COSO serves as a reminder that the ONS must establish a stringent policy of separation of responsibilities that prohibits the board of directors and CFOs from manipulating population data. Additionally, internal controls must be established to reduce the possibility of fraudulent activity in Q1’s Q&L (Addy & Berglund, 2019 ).
Furthermore, automation systems—which enable management to submit specific financial data based on data from the equipment manual throughout the appointment time—have grown in popularity among big businesses (Jenkins et al., 2020). This finally makes it more difficult for management to incorporate its data into a range of financial statements and lets the human element go extinct.
Fraud Triangle Actions by The Audit Team and ONS Leadership
The fraud triangle philosophy provides the basis for the employee fraud process in the workplace. They are defined by the three stages of opportunity, rationalization, and pressure. The mental process that people and organizations go through when they are faced with the possibility of fraud or when they are actually committing fraud is highlighted by the fraud triangle (Udeh, 2019). Pressure is the first stage of the fraud triangle, and the use of financial or personal pressure as a driving force behind fraudulent activity characterizes it. Since ONS is a publicly traded firm, the demand on shareholders in this particular situation is obviously to generate and demonstrate growth and positive elements in the quarterly financial statements.
As a result, the financial pressure that ONS’s shareholders are exerting on the company’s leadership may serve as a tool and source of incentive to supplement the first-quarter sales results in the quarterly financial report. Because OFO lacks internal controls, the second step of the fraud triangle presents a chance for the company’s CFO to change first-quarter sales fraudulently. If the firm had sufficient internal controls in place, the chief financial officer would not be able to make sure accounting entries that would have an impact on sales.
The company’s current financial status and the information in the books must be reviewed and approved in general by the CFO. In these cases, the manual entry, which is closely linked to the income statement, is not accessible to the CFO. Apart from the division of functions, further internal controls can reduce the likelihood of leadership and workers in the firm. One example of such a control is the management reporter, which generates grades and approval levels automatically. ONS acts dishonestly. Rationalization is the last stage of the fraud triangle. They are highlighting how crucial it is for businesses to implement a zero-tolerance policy for fraudulent activity and to remind staff members and clients of this strategy constantly.
SM&A
The concept that this ethical attitude and perspective will be learned during one’s profession is provided by the virtue ethics of accounting and finance. As a recently certified SM&A auditor, Whether an auditor or not, I can say with certainty that the absence of specific professional knowledge in auditing has led to the creation of a moral compass. However, accountants and SM&A experts may benefit much from virtue ethics. The virtue ethics method, one of the most significant ethical theories, enables some auditors and SM&A staff to discern between the good and bad activities of the organization under audit. Even if an SM&A auditor has firsthand knowledge of fraudulent activities using virtue ethics, they may nevertheless conclude that the company’s first-quarter sales data are unethical and constitute fraudulent activity under accounting rules and standards.
Ethical Decisions Determinants
The foundational idea of deontology is that morality should not be judged by the results of an action or its ethical ramifications; instead, morality should be considered in all actions that lead to actions in order to uphold standards of behavior and ethics all along the way. Both the business and the accounting firm SM&A are looking into this situation, and deontology is crucial to both of them. It is possible to determine if the values have been determined using the ONS Act’s findings as well as flawed reports from the board of directors. The CFO, in particular, is likely to take the company’s favorable outcomes into account when determining whether the values are positive.
The company’s activities, however, can be viewed as immoral in retrospect if ethical norms are to be implemented and followed throughout this period, as they do not stem from the necessary accounting rules and processes (Chan et al., 2020). Thus, auditors adhering to many legal streams must ensure that audit procedures and audit integrity are maintained throughout the audit process in order to validate the legitimacy of the process ethics and the audit itself.
ONS typically creates fictional sales statistics for first-quarter results and appears in quarterly reports due to demand from its shareholders and continued pressure on publicly listed enterprises and shareholders. As a result, publicly listed corporations are more prone to commit fraud as they are under pressure to continue growing in order to appease their shareholders. Because of this, I do not fully believe that ONS and, specifically, the CFO of corporate stock have undergone significant change for the betterment of third parties.
The community, the company’s shareholders, and the employees, among others, stand to gain from SM & A. However, if all ethical and accounting rules are broken, it might have detrimental audit and cost repercussions for all parties. That being said, I think an inspection company would be more fulfilling and would let three-quarter sales numbers go swept under the rug.
The Consequentialism Ethical Theory
One may contend that Jones used consequentialism, which is predicated on the notion that moral principles are determined by the outcomes of one or more people’s acts, to defend her conduct. On the other hand, if an unethical outcome is based on a negative one, then an individual’s actions are typically viewed as unethical if they produce a favorable consequence. True, more than one-third of companies claim to have a sizable ownership position and a specific financial interest in the business’s yearly success: chairman Alexander Fred and CEO his son.
Consequentialism, which bases ethical requirements only on the results of an individual’s acts, has a favorable financial effect on sales and profits since the auditors examined this. However, if ONS were forced to falsify the financial statements, the audit’s findings may indicate that this was unethical or unethical behavior, which could have a negative effect on society.
Mrs. Melinda Jones’s qualitative and quantitative costs and benefits
The rise in the business’s total gross profit that was observed in the first quarter of the year is one of the primary advantages connected with Ms. Jones. The revenue increased, but the expenditures stayed the same. In this instance, the corporation is doing well because of the rise in profit margin. This indicates that the QI financials would satisfy the shareholders. On paper, this would entail higher pay and other incentives for growth.
Jones’ candidacy has a number of costs and rewards, both qualitative and quantitative. This decision’s possible advantages and disadvantages, as well as the advantages and disadvantages for the company, will be analyzed. The individual then chooses whether or not to pursue a path of action. As previously said, the study is based on both quantitative and qualitative considerations. For this scenario, the qualitative elements include but are not limited to, revenue and the degree of support the organization receives from its stakeholders. In hindsight, the audit’s quantitative benefits include an increase in income and gross benefit on paper, which implies a rise in income tax.
Effects Of SOX On Fraudulent Activities
Prior to the 2002 Business Scenario Conference, there was a surge in fraudulent activity, which led to the creation of the Sarbanes-Oxley Act (SOX Act) to safeguard the interests of the company’s investors and prospective ones by blocking false and invalid accounting activities.
The SOX rule was prompted by the financial crises of the early 2000s involving companies such as WorldCom, Tyco International plc, and Enron Corporation (Marshall et al., 2023). Ten years ago, a number of investors were so rattled by the early scams that they felt compelled to trust company accounts and ask for a revision of regulatory standards.
The Act also made clear that senior management had to abide by SEC rules and that any known and correct violations of this obligation in the company’s financial statements might result in jail time or other criminal penalties (Marshall et al., 2023). Thus, depending on the seriousness of the offense, Ms. Jones, Patrick, and Alexander Fred may face criminal charges as well as prison time if they verify the ONS financial statements with SOX, which blatantly reflect faulty income and sales figures.
Conclusion
The subject of corporate ethics has gained popularity recently. Corporate trustworthiness may be a big worry in light of the current global economic crisis, rising corporate malfeasance, and restrictive government policies. Strict oversight and control over accounting and financial activities to guarantee that company finances are secure and accurately represent the company’s current status and that the public is provided with the same accurate information that makes the board and management of the company visible.
Because of this, businesses and organizations across all sectors have access to an endless supply of resources to guarantee the correct implementation of downstream account processes and transactions, as well as the application and observance of static rules throughout the business, internal controls, ethics, and service committees. Internal control is only one tool that businesses and organizations frequently employ to make sure that laws, accounting rules, and moral principles are upheld.
References
Addy, N. D., & Berglund, N. R. (2019). Determinants of Timely Adoption of the 2013 COSO Integrated Framework. Journal of Information Systems. https://doi.org/10.2308/isys-52378
Chan, K. C., Chen, Y., & Liu, B. (2020). The Linear and Non-Linear Effects of Internal Control and Its Five Components on Corporate Innovation: Evidence from Chinese Firms Using the COSO Framework. European Accounting Review, 30(4), 1–33. https://doi.org/10.1080/09638180.2020.1776626
Chen, Y., Lin, B., Lu, L., & Zhou, G. (2020). Can internal audit functions improve firm operational efficiency? Evidence from China. Managerial Auditing Journal, ahead-of-print(ahead-of-print). https://doi.org/10.1108/maj-01-2019-2136
Jenkins, J. G., Popova, V., & Sheldon, M. D. (2020). Monitoring the accounting profession under the AICPA code of professional conduct: An analysis of state board of accountancy participation. Journal of Accounting and Public Policy, 39(3), 106742. https://doi.org/10.1016/j.jaccpubpol.2020.106742
Marshall, L. L., Winstead, J. L., Cao, Z., & Varnon, A. W. (2023). Afraid to Lose the Client: Client Advocacy is juxtaposed with the AICPA Code of Professional Conduct. Journal of Forensic Accounting Research, 8(1), 106–127. https://doi.org/10.2308/JFAR-2023-022
Udeh, I. (2019). Observed the effectiveness of the COSO 2013 framework. Journal of Accounting & Organizational Change, ahead-of-print(ahead-of-print). https://doi.org/10.1108/jaoc-07-2018-0064
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