THE PATTERN OF FRAUDULENT ACCOUNTING : ETHICS, EXTERNAL AUDITING AND INTERNAL WHISTLE-BLOWING PROCESS

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Abstract

The ongoing debate in the literature centres on the compromised auditor’s independence in consequence of the relevant provisions perceived for non-audit services provided to the audited clients. The accounting scandals that have occurred over the past two decades show the lack of competence and independence of external auditors, who kept quite in the face of attempted frauds. The case of Tesco represents an undeniable example of the loss of auditor’s independence, who failed to detect accounting manipulation confirming the importance of whistle-blowing procedures in disclosing concerns before they become serious problems. When turnover occurs in CEOs it is more likely that a rotation in external auditors occurs as well. Finally, changes in top management enable whistle-blowing actions to be successful, interrupting the organization’s dependence on serious wrongdoings and preventing a disastrous ending. The success of whistle-blowing in preventing company failure makes it an effective instrument of сorporate пovernance.

Keywords: External Auditors, Whistle-blowing Process, Corporate Governance, Wrong-doing, Accounting Manipulation, Qualified Audit Report, Top Management, Non-audit Services, Codes of Ethics

Received: 26.11.2016

Accepted: 20.12.2016

How to cite this paper: Ferri Di Fabrizio, L. (2017). The pattern of fraudulent accounting : Ethics, external auditing and internal whistle-blowing process. Journal of Governance and Regulation, 6(1), 12-25. https://doi.org/10.22495/jgr_v6_i1_p2