REGULATION OR ETHICS

Presented by
Hua Yang (Jerry)
My Phuong Tang
Melody

OUTLINE
PART 1: whether ethics or regulation is the
solution for the global financial crisis

PART 2: the importance and the role of the
external financial and internal auditors in
modern financial system

INTRODUCTION
the most significant financial and
economic crisis since the great
depression
---------------------(Hewson, 2010)
INTRODUCTION
The increasing amount of politics,
specialists, and researchers think
the cause of financial crisis is moral
problem, rather than the regulation,
and should use the moral method to
solve the crisis.
we can only save capitalism
by rebuilding it by restoring
its moral dimension.

The French President,
Nicholas Sarkozy (2010)
PART 1
answer
PART 1
Prudence and ethics were
pushed aside as greed
overcame good judgment
among mortgage lenders
nationwide.
(Lewis et al., 2010)

PART 1
Several regulators
are better than one.
(Gleenspan, 2008)
AUDITING ???
Auditing is the accumulation and evaluation
of evidence about information to determine
and report on the degree of correspondence
between the information and established
criteria.
Who are External Auditors ?

Accountants work for independently of a particular
company, also known as independent auditors

Determine the importance of independence
THE IMPORTANCE OF EXTERNAL FINANCIAL
---- REPORT AUDITORS
Reducing information asymmetry and self-
interest between principals and agents

Ensuring companies financial statements
give a true and fair view in all material
respects

Then, express opinions on the financial
report

But, what is that for? Why is it so
important?

THE IMPORTANCE OF EXTERNAL FINANCIAL
---- REPORT AUDITORS
Auditor is a watchdog not a bloodhound
They will not,
Detect fraud
Clean audit opinion
Check all transactions
Provide complete assurance
Guarantee the future viability of the entity


THE ROLE OF ETHICS OF FR
-------INTERNAL AUDITORS
It is important that financial report users
believe that the external auditor is
independent in the company they audit.

If they lack of independent, it will impact
on credibility and reliability of financial
report which will significantly affect
financial users decision.

Additionally, to ensure that the financial
report is met the requirement of relevant,
reliable, comparable, true and fair, it is
essential to charge with corporate
governance.
THE ROLE OF ETHICS FR
-------INTERNAL AUDITORS
They failed because they assaulted the key principle
of good corporate governance.
Enron and HIH are good examples.
The collapses of both Enron and HIH are good
examples.

Main stage of an audit:



Planning Performing Reporting
THE ROLE OF ETHICS OF FR
-------INTERNAL AUDITORS
Familiarity threat to independence of assurance teams
or a particular auditor.

Finally, Anderson easily came to wrong conclusion in
HIHs annual report in the year of 2000.

What is the role of ethic of external auditors?

Clearly, Anderson failed to perform either
independence in appearance or
independence of mind with regard to their
client which result misstatement of
financial report cause huge losses for it
financial report users.

Internal Auditors
THE IMPORTANCE OF INTERNAL FINANCIAL
---- REPORT AUDITORS

1. Helping an organization as a whole to achieve its
stated objectives

2. Helping an organization to examine and evaluate
the effectiveness and efficiency of their internal
controls by risk-based approach

3. Helping an organization add value and support
decision making through providing audit opinions
and professional recommendations
THE ROLE OF ETHICS
-------INTERNAL AUDITORS
1. Ethics act as guides for the internal auditors, who
are expected to maintain independence and
objectivity when performing their duties .

2. Internal auditors are often regarded as an ethics
audit to assess an organizations ethical climate,
and evaluate that whether the company has
achieved the desired level of legal and ethical
conduct .
THE ROLE OF ETHICS
-------INTERNAL AUDITORS
3. Internal auditors can consider potential threats and
create new opportunities and suggest on budgets, risk
management, internal audit goals to improve the
internal controls.

4. In order to meet the increasing demand for corporate
integrity, internal auditors are required to act as an
ethicist to provide more value-added services.



5. Internal auditors will assist the manager to meet ethics-
related requirements and set new standards of behavior
throughout the organization .


REFERENCES
Calomiris, CW 2009, Financial innovation, regulation, and reform, The Cato
Journal, vol.29, no.1, pp65.
Douglas M Boyle, Dana R Hermanson & Anne Wilkins 2011, ETHICS AUDITS:
IMPLICATIONS FOR INTERNAL AUDITORS Internal Auditing, vol. 26, no. 6, pp. 3.
Fox, C 2009, The lesson unlearned, The Australian Financial Review, 29
December, p.20.
Gleenspan, A 2008, The Age of Turbulence: Adventures in a New World, Reprint
edition, Penguin Books, New York.
Rezaee, Z 2010, The importance of internal audit opinions: as their role
expands, many auditors are providing opinions on governance, risk
management, and internal control, Internal Auditor, vol. 67, no. 2, pp.
Lewis, V, Kay, KD, Kelso, C, Larson, J 2010, Was the 2008 Financial Crisis Caused
by a Lack of Corporate Ethics, Global Journal of Business Research, vol.4, no.2,
pp77-85.
Moroney, R, Campbell, F & Hamilton, J 2011, Auditing a practical approach, 1
st

edn, John Wiley & Sons, Australia.
Sexton, E 2008, Auditor agrees to ban on practice, The Sydney Morning
Herald,6 August.

Clearly, Anderson failed to perform either
independence in appearance or
independence of mind with regard to their
client which result misstatement of
financial report cause huge losses for it
financial report users.