MHA Textile Case
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. 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...
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