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    Breaching auditing ethics Assignment Help

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    Breaching auditing ethics Assignment Help


    Breaching auditing ethics: A case study on Commonwealth Bank, Australia

    Executive Summary

    Commonwealth Bank of Australia, also known as CommBank suffered backlash from the media and government as fallout with shareholders were reported over alleged financial scandals by the employees of the bank. It was reported between 2015 and 2017 that the Commonwealth Bank had been named in a series of money laundering incidences, forgery of signatures and fraudulent insurance policies leading to breaches and non-compliance with code of ethics of banking. The research study aimed to analyze level of ethical breaches conducted by the bank and its interrelation with impacts to the brand name. In order to understand dependent variables and related terminologies, a review of literature of four journal articles were conducted through which variables like ethical moral standards, auditing standards, ethical relativism, financial scandals, corporate responsibility and corporate governance were understood. Based on these, a research methodology was followed to investigate the impacts of scandals on Commonwealth Banks. Subsequently, through defined tests and procedures, conclusion was drawn that the lack of fairness, transparency and accountability became the reason for repeated financial scandals in the Commonwealth Bank.

    Chapter one: Introduction

    Introduction to the topic of the research

    While ethics is considered an integral part of auditing, it is a fact that internal auditors have always been more aware of the code of ethics in this field. Its importance and relevance has already been spoken of in the Code of Ethics, which is presented by many institutions and organizations who teach auditing to the most brilliant minds in the world. This focus on ethics in auditing from the very early phases is a sign of just how essential this factor is, when it comes to not only following certain principles, but also for the betterment of the economy within a country’s industry. Through this research, light will be shed on why ethics is absolutely vital for banking organizations, especially the ones with a considerable consumer base.

    Overview of client organization

    Founded in 1911, the Commonwealth Bank of Australia is headquartered in Darling Harbour, Sydney, Australia. With more than 50,000 employees and a gross revenue turnover of more than AUD 26 billion, the bank is considered to be one of the most successful banks in terms of both operations and earnings. Although the bank has been able to build quite the image amongst its consumer base, there has been some issues in the near future due to which some people have started questioning its authenticity.

    Besides strings of money laundering scandals, Commonwealth Bank had also been reported to provide poor financial advice and failing to fulfil its insurance claims. As a result, the Australian Transaction Reports and Analysis Centre had filed a suit with the federal court against the Commonwealth Bank. The suit accused Commonwealth Bank of not complying with the Anti-Money Laundering and Counter-Terrorism Financing Act for more than 53,700 times in total. Each of the times, the Bank incurred a maximum penalty of 18 million Australian dollars (US$14.3 million).

    What real problem does the research seek to resolve and why is it important to research this topic?

    At present, Commonwealth Bank of Australia faces an intensive inquiry by the Australian Prudential Regulation Authority on charges of money laundering. The first series of arrests in connection with the alleged fraud had taken place in 2015 when two employees were found to be carrying stacks of money receipts of Commonwealth Bank. It was a major incident related to the Australian financial section,which made the government aware of the loopholes present in the system.

    In the course of the investigation, it was revealed that the bank had been ignoring culture, accountability and governance in its internal functioning for a long time. The inquiry was also done to fulfil a civil suit that was brought forward against the bank by a national financial intelligence agency. Through a review of compliance with ethical standards, securities regulators found serious issues within the board of directors and senior executives of the institution. This incident has revealed that banking institutions in the global level have been avoiding corporate responsibilities for quite some time and consumer complaints system had become either absent or faulty in these institutions. Several studies following the breach by the biggest national bank of Australia revealed that it was a global problem where lack of ethical principles and practices among bank employees were deteriorating the credibility of some of the finest financial institutions (Mintz, 2018). The case has been instrumental in highlighting that there needs to be a strict monitoring of behaviour and conduct system among banking sectors so that employees cannot get away with fraudulent dealing with their clients. The case has promoted the need for a new consumer complaints authority and a regimen for accountability of bank executives in Australia.

    Research studies in the banking and financial sector have time and again revealed that Australian banks are well-regulated, well-capitalized, and financially stable (Avkiran, 2018). Against such a strong reputation of financial stability, regulators must now delve deeper into investigating the internal culture of banks in order to identify examples of disturbing ethical behaviour that have led to the current crisis.

     In such a scenario, the trust of Australian communities on banking systems have been badly damaged, particularly disturbing the loss of reputation of the biggest national bank of the country. In order to understand the causes, impacts and procedures of such breaches without proper knowledge of authorities, this research has been carried out. This research, with the case sample of auditing failure of Commonwealth Bank, would shed light on possible shortcomings on the organizational culture of banking institutions. It would also attempt to identify the ethical standards of accounting and auditing through the lens of psychological analysis. The research would, in the process of investigation, highlight facts and insights that could help banks to better address the lack in their organizational culture in order to avoid financial distress in the future.

    Research Problem and Research Objective  

    The case of the Commonwealth Bank has revealed that discrepancies of a considerably disturbing level exist within the internal culture or organizations that have led to strings of financial frauds in the richest banks of Australia. In absence of a monitoring of employee behaviour and legal accountability, bankers have indulged in unethical practices in Australian banks, damaging their repute in the public eye. It cannot be wrong to say that this might have far-reaching negative impacts in the way people bank in Australia. This would lead to a great financial crisis and great blow to the country’s economy in the coming years if not addressed properly. 

    From the above, it is visible that the main research problem is to identify the internal issues of ethics at these financial institutions. Another closely related research problem is to examine the causes of these internal ethical issues – both in Australian auditing departments of banks and the auditing department of Commonwealth Bank. The research problem thus extends to identification of ethical issues in bank auditing, studying their impact and then evaluating them to understand how they can be controlled.

    The objectives of this research study are the following:

    Chapter two: Literature review

    Introduction

    Literature review provides information from existing literature on a particular aspect. in this regard literature review helps one researcher to  analyse the available research materials that are present in hard copy or soft copy. Available literature helps the researcher to conduct the research in accordance with the topic and it provides knowledge on the aim of the research. In this aspect, auditing industry-oriented literature will be considered as valuable data source and the researcher willemphasize more on literature related to unethical breaches in auditing industry. By analysing the available literature, the research will provide information related to the above-mentioned aspects.  Apart from this, the literature will help the researcher to recommend rectification methodology to improve the current standards of auditing industry of Australia.

    Ethical issues in banking audit

    Depending upon the auditing results, an organization gets financial support from the market. For better understanding of the facts, it can be stated that auditing is one of the most important events for an organisation. During auditing, an auditor has to understand that the report will convey a message to the people who are the stakeholders of the organisation. Disclosing the negative points of the organisation will harm it financially. People will not rely on the organisation and they will not invest in it.  In this regard, an auditor has to make precise approach, which will not harm the institution and the investors who are targeted by the organisation. The Australian economy has faced several challenges in the recent years and it can be stated that a precise auditing is highly necessary for generalizing ideas to overcome it (AASB, 2018).

    According to the Ethical Board Group Ltd (2015), The activities of different regulatory Agencies have been minimised by organisational policies that are designed for restricting the outsiders from getting an inside knowledge. Different data protection act has been introduced in the system in order to prohibit the outsiders from disclosing the negative points of an institution. For an auditor it is a hectic condition where he cannot take necessary steps to prohibit the interested individual from investing in the company. The banking sectors consider these prohibiting policies in order to handle the sudden financial shocks from the market.

    Becoming a trustworthy advisor is one of the necessary things for the auditor, and in this aspect, he has to comprehend with the demands of the investors and the internal management of the organisation. People often states that there are challenges but overcoming the auditing oriented issue is depending on approach of an auditor. The final result submitted by the auditor will have significant impact on the market reputation of the organisation.  An organisation always seeks for better public relationship by providing them adequate service in a reasonable rate. In banking sector, auditor's responsibility is to examine important facts that are related to development of the economy of the bank and the country as well.  In accordance with Joseph McCafferty (2018), an auditor creates a bridge between the investors and the organisation, and construction of the bridge needs to be firm to handle the shocks that are part of the collaborative venture. The ethical standards in the banking industry has fallen in the recent times, because of the breaches in the security system, which are considered as a result of whistle blowing from the banks internal part (Dantas et al, 2015). Providing tampered knowledge to the people will never be useful for the companies and in this regard, the companies have to be truthful and open about their negative aspects. In this manner,the ethics of the auditor will not be breached, and the organisation will possibly get an exponential growth in the market.

    Ethical issues in bank auditing

    The banks of any country have to keep a certain deposit amount to the central bank of the country.  If any bank does not comply with the regulations provided by the central authority, they have to pay a certain amount as penalty to the central bank of the country.  Annually every bank has to provide data related to their transactions in spreadsheet files, so that the authorities can calculate the amount of tax the bank has to pay to the central bank of the country. It is seen that many banks do not comply with the rules and they temper the transaction amount to minimise the imposed tax amount (Khurshid et al., 2017). It is also seen that the higher officials of the banks get involved in this process and use their power to cover the ethical breaches.

    The banking auditors are often pressurised to accept the tempered data as authentic report. in this type of situations auditors face internal and external pressure from the higher authority of the country and the management.  It is also seen that the management often takes misleading decisions that causes harm to the revenue generation of a bank due to external pressure from the governmental bodies (Ac.els-cdn.com, 2018). Disclosing the financial weakness of a bank will affect the growth of economy of a country and it is a vital aspect where an auditor face dilemma.  In some cases and auditor gets the tempered file and fail to find the meddled section. This leads to submission of a wrong information related to the banks financial transactions (Houghton and Campbell, 2013). In this manner,economy of a country faces depreciation and the investors get affected. Disclosureof filetempering coins questions related to auditor’s efficiency where the auditor has no knowledge of the matter. The management breaches the ethical considerations and an auditor faces the issue for a long time.

    Impacts of noncompliance with ethical issues in Commonwealth Bank

    It is essential for all the banking sectors to maintain all the rules and regulations and keep the record of each and individual transaction in an efficient manner for future references. The auditing staffs and accountants of all business organisation need to maintain all the documents of customers safely. Otherwise, it can create different issues during auditing such as material misstatement leads to hampers overall brand image of the organization (Baselga-Pascual et al., 2018). Commonwealth bank generally faced the civil obligations due to different financial issues in auditing. According to the code of conduct of financial services, it has been recognised that all the business organisation are encouraged amending or modifying their codes based on new frameworks. The ASIC has the power to approve the codes that are related to countries regulations. The code of ethics generally enables the customers to stop passing different personal information to bank subsidiaries. All the financial sectors need to disclose it’s all the fees and banking sectors needs to keep all the debits and credits perfectly (Steen, McGrath and Wong, 2016). Now the digital technology also enables the banking sectors to provide every transactional message to the customers through the mail.  At the same time, the banking sectors need to evaluate all the related risk factors to make the instant solution to mitigate different issues as well as to reduce the risk factors. Apart from that the financial staffs also have the responsibilities to manage each and individual operation correctly to avoid loss of financial data.    

    On the other hand, benchmarking exercise is one of the best ethical practices for all the banking sectors that generally provide detail information regarding workplace practices, integrity, the participation of each and individual team members (Shepherd, 2015). All the banking organization needs to provide all the detail auditing and financial report to the central bank of Australia. Nonfulfillment of these ethical issues can create material misstatement in audit report. At the same time wrong information, lack of proper information regarding each transaction and loss of customers’ transactional information can create chaos and different fraudulent violations. Breach of contract can hamper the overall brand value and company need to face different legal problems leads to a penalty of massive amounts (Steen, McGrath and Wong, 2016). Based on research it has been identified that the commonwealth bank has been blamed for more than 53000 breaches of money laundering law. According to the report of Australian financial intelligence agency, commonwealth bank failed to report the total transaction amount of $77 million. This organization was unable to provide 53000 transaction reports from November 2012 to September 2015. For that reason commonwealth bank needs to provide huge penalties leads to financial loss as well as hampering goodwill. Banking functionality is closely related to the government implemented tax policies that are regarded as the backbone of banking strategies (Fetiniuc and Luchian, 2014). The main problem of this organization is  the lack of monitoring during transactional operation and this type of non-ethical behaviour  can create problems in the overall  countries economy because all the banking sectors plays vital role in maintaining countries economy.

    Recommending control measures to prohibit unethical breaches

    Auditing should be considered as a serious project, which will provide opportunity to the investors who are looking for benefits from their investment.  There are several recommendations that can be implemented in the process of auditing an organisation

    Firstly, an auditor has to take unbiased approach to conduct an audit. During the process, he has to consider every minute aspect that can have effects on the functionality of an organisation.  Auditors often get distracted from their responsibilities, and get attracted to the luring offers of an organisation. In these cases, an auditor should take necessary legal actions against the company, which is offering such inducement. 

    Secondly, an auditor has to be adhered with all the rules and regulations that are mentioned in Australian auditing policy. In accordance with, Auditing Standards Made Under Section 336 of the Corporations Act 2001, an auditor has to justify the results which are reflected in the final submitted report, because the organisation is going to take rectifying actions, in order to nullify the negative aspects.  In this context, the auditor has to be truthful and unsullied to different tempting offers. Adhering with the above-mentioned policy, auditor can be impregnable, and his work will be acceptable. Regulation of the monetary policies and cash inflow should be prioritised from the emergence of a sudden need that has the potential to normalise the positive effects of organization’s decision (Allen et al., 2015).

    Thirdly, an auditor has to check every document that is submitted by the management of the organisation. The management should be informed if any particular document is not present among the submitted ones (Auasb.gov.au, 2018).  The management has to be transparent, and they have to deliver all the documents without hiding anything.  In this aspect and organization has to include policies related to maintaining work ethics during auditing process. 

    Summary

    From the above description, it can be illustrated that the Australian auditing industry needs proper monitoring in order to minimise the events related to breaching of auditing ethics. The reviewed literature provided a generalized idea that Australian auditing industry has some loopholes in their system.  Some people from the auditing industry are taking advantage of the situation in an unethical manner and harming Australian economy. The above section also detailed that some rectifying methodologies can be taken into consideration to nullify the effects of breaching the protocols related to auditing industry.  The involvement of policy makers and government bodies is also an important fact. These bodies can be considered as major stakeholders of auditing industry and in this regard, the literature has provided sound knowledge and justified arguments.

    Literature Gap

    The researcher has selected relevant journals, articles and  press releases to conduct the literature review.  In this aspect, the researcher mainly focused on the objectives and aim of the research. However, it is important to illustrate that, only a literature review is not capable to grasp and fulfil the objectives of a research.  The reviewed literature has detailed about the fault in banking auditing section and the ethical issues that are faced by auditors during a banking audit. However, the literature did not provide any ideas that are related to of such ethical concerns related to auditing in the banking sector. The literature has provided recommendations that can be considered as effective measures. The implementation process and cost related to implementation of such effective recommendations are not highlighted in the literature review. The opinions of people who are related to the industry are not precisely detailed in the literature review.  Infuture, the researchers have to consider these facts to complete the literature review without any gaps.

    Chapter three: Research methodology

    Introduction

    Research methodology is the foundation of a research. A researcher has to ensure that the selected methodologiesfor conducting the research is relevant to the objectives, otherwise the final result of the research will not meet the requirements.  Research methodology provides logical interpretation of selecting data collection method and findings of the collected data. The feasibility of the research depends on research methodology and that is why it can be stated that research methodology needs to be conducted with proper ethical consideration.

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