Auditing And Consulting In Accounting Firms Accounting Essay

Category: Accounting

A conflict of interest is a situation where an individual whether a single person or a corporate body have more that one interest in mind (Miller, Roberts and Spence, 2005). Globally, numerous institutions are trying to find answers to help in curbing morality and ethics at the workplace. Corporate fraud is on the rise especially among the top company officials. Issues that are related to conflict of interest more so in economy-related institutions have taken the centre stage in public discourse. In the process, it has triggered the legal, regulatory and other governing financial bodies worldwide to take serious actions.

When it comes to financial institutions, conflicts of interest have resulted to major losses in the organization. An example is the fall of Enron and its financial auditing firm Arthur Andersen. Andersen auditing firm, which was a financial auditing company that collapsed after ninety years of financial services to the high end financial organizations worldwide (Alexander, 2002). The conflict of interests between the company managers resulted to internal the within the company and subsequently, a financial collapse.

Conflict of interest and corruption are mutually dependent of each other. One way is the fact that the nature of an individual in the society affects their moral integrity (Miller, Roberts & Spence, 2005). A financial auditor having an investment in another financial market tends to divert the company resources into their own financial gains forgetting the initial company's investment. One example can be seen through the Arthur Andersen audit firm, where the company directors were busy swindling company money for their own gains. When the owner realized this, a lot of damage had already been done (Alexander, 2002).

Conflict of interest arises again when one has two fiduciary roles that are in constant competition and in the process, making the person have a problem in coming up with a good judgment (Miller, Roberts & Spence, 2005). An example of such conflict of interest is an accountant who is also the administrator of their own brick building company and is responsible for auditing the company's financial statements. The accountant would have a difficulty in pursuing both roles as a manager and an accountant and in the process; their fiduciary duties become interfered with.

Conflict of interest usually has several implications especially to the stakeholders. One such stakeholder is the chief financial officer. The chief financial officer is the overall person entrusted with making sure the finances in a company are dealt with in accordance to the stipulated regulations (Miller, Roberts & Spence, 2005). According to Campbell (2005), the chief financial officer is pit under a conflict of interest by the company investors. Every financial quarter, these investors expect an ever-increasing company profit report. The conflict of interest here arises because the chief financial officer is under pressure to cook the financial books in order to look appealing and in the end, their role of upholding integrity and the accuracy of the accounts in the financial books becomes questioned (Campbell, 2005). The other conflict of interest comes about because the CFO's fiduciary roles are not straight due to the fact that they are responsible for the ever changing reports of the financial books. In the end, a chief financial officer who has been entrusted that responsibility by the company's board of directors ends up being a person of questionable character.

A financial auditor is another stakeholder in a financial institution. One assumption of a professional is the ability to complete an independent, high quality and unbiased audits (Moore). There is a potential conflict of interest between an auditor and a financial adviser especially when performed at the same time by one person (Miller, Roberts & Spence, 2005). An accounting company providing both auditing and financial advisory roles to another company may result to conflict of interest in the sense that the financial advisory role tends to bar the independent role of auditing. In the end, interfering with proper fiduciary roles of the auditor in ensuring the company's financial records are true, up to date and give a fair account of the operations in the company (Miller, Roberts & Spence, 2005). The Arthur Andersen auditing firm and their role in the collapse of their client Enron is one significant way to show the relationship between corruption and conflict of interest, which led to the company's collapse.

Upholding ethical corporate social responsibility and moral integrity in an organization requires one to deal with the arising conflicts of interests. Avoiding situations that could result in corruption is the most suitable way (Miller, Roberts & Spence, 2005). Ensuring there are stringent measures set aside regarding work allocation and responsibilities reduces the chances of potential conflicts arising. In a financial institution, the accounting responsibilities ought to be handled by the right department, which are the accounts and banking departments and their respective roles.

Corruption is facilitated by secrecy within an organization (Miller, Roberts & Spence, 2005). In the end concealment of company reports and evidence leads to embezzlement of corporate profits without any form of justice and impunity. In order to deal with such detrimental situations, disclosure of one's conflict of interest becomes a powerful tool in dealing with corruption. Disclosure also aims at making sure corruption is controlled or at least one element of it is dealt with completely (Miller, Roberts & Spence, 2005).

Conflict of interest hinders many improvements within an organization. Corruption being dependent on conflict of interest erodes one's moral values as well as undermining their social and ethical responsibility towards their organization. Dealing with an individual or a company's potential conflict of interest ensures corruption and the collapse of such organizations becomes minimal.