MHA Textile Case free essay sample

The MHA Case raises the issues of ethics and independence in the auditing world. MHA is the audit client, but NYH is one of its major subsidiaries. NYH has been forced to cut costs, which has left its accounting department lacking in enough adequately trained personnel. When Susan, NYH’s Accounting Manager asks the auditor for help in closing the books for the second-quarter, the auditor must decide how to proceed. The auditor has two main options: help Susan close the books or decline Susan’s request for help. Both of these options have their advantages and disadvantages. The auditor must weight the costs and benefits of both providing assistance in NYH’s bookkeeping. One benefit of providing assistance is preventing a strained relationship with the client. Since the client is clearly under a great deal of stress, she would likely be very grateful for the help and provide extra compensation for the service. We will write a custom essay sample on MHA Textile Case or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Additionally, Susan would undoubtedly prepare books that contain many mistakes and misstatements, because she does not understand FAS 146. The auditor will have a much easier and faster audit by helping Susan, since there would be fewer errors involved. On the other hand, the biggest cost involved in helping the client is the auditor’s sacrificed independence. One of the Sarbanes-Oxley Act’s main goals is to increase auditor independence. The auditor would be jeopardizing his career, the reputation of his firm, the reputation of the client, and those associated with the surrounding financial market. The Act prohibits auditors from providing any non-audit services, other than tax, for audit clients. By providing this bookkeeping service, the auditor violates SOX and loses a great deal of independence. This violation compromises each company and the users of their financial statements. On the other side of the spectrum, the auditor may decline NYH’s request for help in closing its books. The critical benefit of refusing the additional service is that the auditor is able to carry on his ethical responsibilities by remaining independent. Through this the auditor will not risk any legal or ethical consequences. A potential cost of refusing the service is the effect it could have on the client relationship. Since NYH is currently under a lot of pressure from the industry and time constraints, the auditors may hurt the relationship by refusing help in the client’s time of need. Additionally, the audit will be more complicated and time consuming, because the bookkeeping will not be up to the FAS 146 requirements. This costs the audit firm many resources such as their time and money. If I were the auditor in this case, I would choose to decline the extra bookkeeping service. The Sarbanes-Oxley Act prohibits auditors from providing additional non-audit services in order to maintain independence. An auditor who provides bookkeeping service to a company and then proceeds to audit it is checking over his work. The costs of helping Susan overshadow the costs of declining the service. Whereas declining the service effects the audit firm’s use of resources and a potentially strained relationship, helping the client with an additional non-audit service is prohibited by law and would result in harmed reputations and serious consequences to all those involved. Those consequences could include the auditor losing his license or job, a rise in the public’s suspicion and distrust in the audit firm, and skepticism of MHA’s business activities. The public expects independence from an auditor to ensure trust and neutrality in the audit. The audit firm needs to enforce the objective of remaining independent regardless of its few consequences. One thing the auditor may do to avoid stress on the client relationship is recommend someone who is independent from the auditor that could help close their books at a reasonable cost. The auditor should explain the reasons for declining and the potential consequences of helping, and in doing so, the client would understand the firm’s good intentions.