For those unfamiliar with the American Institute of Certified Public Accountant's pronouncement AU 317 entitled "Illegal Acts by Clients" following is a link:
http://www.aicpa.org/download/members/div/auditstd/AU-00317.PDF.
Following also is a link to a current news article relative to the alleged acts of bribery by a U.S. Congressman (http://allafrica.com/):
http://allafrica.com/stories/200605220098.html.
The news article published on the website allafrica.com sheds light on U.S. Rep. William Jefferson, (D), La., being video taped accepting $100,000 from an F.B.I. informant. The article went on to describe a scheme whereby Congressman Jefferson allegedly accepted bribes from a communications company to get his children a "cut" of a government contract in Africa. The bribe money was then supposed to be forwarded to a high level African official to ensure both Jefferson's family and business colleagues received the contract of their desire. The article then goes on to mention businessman, Vernon Jackson, from Louisville, KY, who plead guilty to federal charges of bribery. He admittedly forwarded $400,000 to Jefferson in order to procure telecommunications contracts in Africa. This implicates the lawmaker and leaves him right in the middle (http://allafrica.com/).
Lets examine how an event like the bribery scandal, which we hear no shortage of in the news media today, might relate to an audit. Returning to the American Institute of Certified Public Accountant's pronouncement AU 317 section .09 specifically states (http://www.aicpa.org/):
.09 In applying audit procedures and evaluating the results of those procedures, the auditor may encounter specific information that may raise a question concerning possible illegal acts, such as the following:
*Unauthorized transactions, improperly recorded transactions, or transactions not recorded in a timely manner in order to maintain accountability for assets
*Investigation by a governmental agency, an enforcement proceeding, or payment of unusual fines or penalties
*Violations of laws or regulations cited in reports of examinations by regulatory agencies that have been made available to the auditor
*Large payments for unspecified services to consultants, affiliates, or employees
*Sales commissions or agents' fees that appear excessive in relation to those normally paid by the client or to the services actually received
*Unusually large payments in cash , purchase of bank cashiers' checks in large amounts payable to bearer, transfers to numbered bank accounts, or similar transactions
*Unexplained payments made to government officials or employees
*Failure to file tax returns or pay government duties or similar fees that are common to the entity's industry or the nature of its business
If we relate AU 317.09 to Congressman Jefferson's situation, or more appropriately through an auditor's eyes, the books of Mr. Jackson's Kentucky telecommunications business we can see that there definitely would have been activity as described by the pronouncement for an auditor to uncover (http://www.aicpa.org/). Why then are not more scandals and illegal acts similar to those perpetrated by Mr. Jackson uncovered by the accounting profession?
The answer, I would presume, lies in the individual judgment of the independent auditor. The pronouncements for the accounting profession are very specific that the independent auditor should consider not only the materiality of irregularities or illegal acts but also the impact of these on the financial statements taken as a whole. Thus, we have to be very careful to limit our scope to the financial statements. In my opinion, it is not the job of the accounting profession to become corporate police. However, within the realm of our professional pronouncements, we cannot forget our obligation to take the ethical high ground when it comes to the broader spectrum of the impact illegal acts and irregularities within the context of the financial statements may have. Just ask any Enron shareholder. As an auditor, you must always remember, within the context of the Congressman Jefferson debacle, your work may impact the next election.
Always--
Kevin P. Felty
Sources--
AICPA. Illegal Acts by Clients. Retrieved May 27, 2006, from http://www.aicpa.org/download/members/div/auditstd/AU-00317.PDF
Jolayemi, M. (2006, May 22). Nigeria: U.S. Congressman Jefferson Collects Bribe in Vice President Atiku's Name. AllAfrica.com. Retrieved May 27, 2006, from http://allafrica.com/stories/200605220098.html
10 comments:
Good for you for blogging.
I would love to know what you think about auditing after you pass the Audit section of the CPA Exam. (Maybe you can post another article.)
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