Ethics and auditing practice has recently been in the news. Recent scandals in Australia (such as PWC and its ethical behaviour in consultancy work concerning taxation reform for multinational corporations and alleged issues with billing practices by KPMG in relation to its work with the Department of Defence), significant audit failures (including British Telecom, Galliford Try, Kier, Stagecoach, Rolls-Royce, Autonomy, Conviviality, and other similar failures) and record fines by the Financial Reporting Council (the FRC) in the UK as well as fairly regular fines issued by the US Securities and Exchange Commission) around a lack of auditor independence all have helped to question the ethics of auditing firm behaviour.

Required:

In your report, you are expected to address the following issues: a) Critically evaluate whether the audit expectation gap model is sufficient to be able to account for the perceived ethical failures suggested above? If yes, explain where and how the model accounts for expectations around ethics? If no, explain how you would adapt or change the model to better illustrate the expectations around ethical behaviour.

b) Criticially evaluate the impact of these ethical scandals on the current state of the auditing profession.

c) Critically evaluate whether these ethical scandals impact upon the professional practice concept of professional scepticism and/or reflect poorly on the application of professional scepticism. If you think that these scandals have no impact, then explain why that is. If you think that these scandals have an impact, explain what that impact might be.

1 Duties defined by the law and profesional promulgations 2 Duties which are cost-beneficial for auditors to perform