MAA303 Audit And Assurance - Chapter 2: Ethics, Legal Liability And Client Acceptance

2.23 Ethical principles

Charles is at a neighbourhood Christmas party with several of his flatmates. Over a few beers, Charles gets into a conversation with a neighbour, William, about mutual acquaintances. Charles is a junior auditor with a large accounting firm (although he tells William that he is a partner at the firm) and William works for a large bank. During the conversation Charles and William discover that they have both had professional dealings with a particular family-owned manufacturing company. William reveals that the company’s line of credit is about to be cancelled because of some irregularities with the security documents. Charles is concerned to hear this news because he has just participated in the company’s financial report audit and there was no indication of any problems with its borrowings. Charles tells William that he believes that the founder of the family-owned company (and the current CEO) is having an affair with his personal assistant, and has quietly increased his shareholdings in a listed company that supplies components to the family manufacturing company. The components manufacturing company is about to announce to the share market that it has just won a very large, and very profitable, contract with a Chinese company.

Required
Discuss the ethical principles that are potentially breached by Charles’s behaviour at the party.