Audit Engagement Team May Reply To The Post

Audit Engagement Team May Reply To The Post

Audit Engagement Team May Reply To The Post

The conflict of interest plays such a big role in today’s environment. I’m not really referring to any specific environment cause it applies to almost (if not all) every kind of environment there is. According to Jean Murray from The Balance Small Business” the ‘conflict of interest’ is defined as “A conflict of interest is when a party has competing interests or loyalties because of their duties to more than one person or organization. A person with a conflict of interest can’t do justice to the actual or potentially conflicting interests of both parties.” and this conflicting situation produces blurriness in making key decisions and often results in choosing one side over another, affecting either positively or negatively the parties involved.

I mentioned that this situation can happen in every environment at every level from an accounting environment to a family environment, from a CFO of a big corporation to a child caught in between his/her parents. In this particular situation, we will refer to how this situation applied to a big company in the mid 1990s: Health Management Inc.

In the case of this corporation, for me, the biggest conflicting was in Drew W. Bergman, the CFO, who before being CFO of the corporation was an employee of the Mid-Tier Firm that audited the client, BDO, and directly supervised the 1989 and 1990 audits to the interested party.

That’s the reasoning why the SOX explicitly addresses this issue in Section 206 of the Act as it establishes a one-year cooling off period before a member of the audit engagement team may accept employment in certain, designated positions with an issuer.

This is extremely important because one must be able to clearly draw the line between the two charges. It is impossible for any person to be the one who pays and the one who receives without some type of lean to favor one of the two positions. In my opinion, this section of the SOX should be amended and require a longer period between being an audit partner and a director of the auditee company who has a say in the financials of the company. My recommendation would be 5 years but I guess that’s just my opinion haha.

This conflict is what made possible that inventory accounts of the corporation were inflated, falsified the aging of the AR and therefore, shown an inflated revenue in the financial statements of HMI.

sources to use:

see attached files