The Role of Ethics and Auditing in Restoring Public Trust in Corporate Reporting

Abstract

In the last decade, the auditing environment has changed dramatically. The failure of Enron was perhaps the biggest single catalyst for change, but other corporate scandals, in the United States and in Europe, also led to serious concern about the quality of financial reporting and corporate behavior. Inadequate audits, poor corporate governance, lax standards and insufficient regulatory oversight were to varying degrees, blamed for the problems. In particular, the regulation of accounting firms and their auditing practices came under intense scrutiny throughout the world even in those jurisdictions that had not suffered from a serious scandal. It is believed that if accountants and auditors maintained the high ethical conduct expected of them, many of the recent corporate scandals would not have been possible. The profession in different countries have their codes of ethics and also supposedly have in-built selfregulatory mechanism. Such codes have been shown to be either incomplete, or the profession itself lacked the will and resolve to enforce them. The self-regulatory mechanisms appear to be extremely weak and incapable of stemming the growing tide of unethical behavior of corporate top management and professional accountants/auditors. This has been a great concern to the public and users of financial reports about the credibility of such reports. It is therefore, the intention of this paper to examine the role of ethics, auditors and other stakeholders in corporate financial crises and to proffer solutions that would restore public trust in corporate reporting.

Keywords: Ethics, scandal, auditors, reports and trust.