Should auditors be able to exercise more ethical judgment?

Has the accounting profession created a situation in which the auditors’ ethical behavior is impaired by their professional obligations? Imagine an external auditor in this situation. In the course of a financial statement audit, unequivocal evidence of a fraud is uncovered. The auditor confronts the client with evidence; the client admits to the fraud and agrees to make the requisite adjustments in the firm’s financial statements. The auditor also notifies the client’s audit committee of the fraud. However, the committee comes to the decision that no further action is necessary. Despite that the client attempted to commit fraud (a fact that might be relevant to investigators or regulators), the adjustments remove any material misstatements. The auditor, at this point, has no further recourse but to issue an unqualified opinion. Read on …..

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