Within your tutorial group, organise yourselves into groups. Where possible, organise the groups according to the professional majors that students are studying, such as groups of accounting, marketing, human resource management, economics and management students. Read the following ethical dilemma and discuss how you would respond to the situation described. Present your group’s response to the class.

Auditing hidden agendas

All members of the accounting profession, regardless of their role, are required to comply with the fundamental principles contained in APES 110 Code of Ethics for Professional Accountants. The first principle, integrity, requires members to be straightforward and honest in professional and business relationships. It is reasonable, and expected, that an audit committee will scrutinise key financial risks and the risk management processes, particularly in a dramatically changed business-lending environment. It is the responsibility of the audit committee, rather than the CEO, to determine the need to review future loan compliance reports before they are provided to lenders.

Dilemma: You are a member of an audit committee of a company that has experienced some volatility as a result of the recent financial crisis. You have just received the agenda for the first meeting in 2009 and, much to your surprise, there are no agenda items in relation to any impact the financial crisis may have had on your company. You are particularly concerned that the company may be at risk of default on some debt covenants. In addition, the scheduled quarterly compliance audit on the loan portfolio, which is required as part of the performance reporting to lenders, is not included.

You approach the chair of the audit committee and seek an explanation as to why these agenda items do not appear. The chair advises that he has raised the issue with the CEO and has had assurances that there are no matters that need to be discussed by the committee in relation to the current financial crisis. The CEO has also advised that the committee no longer needs to sign off on the loan compliance audits as these audits are at the request of the debt providers and not the committee.

You remain unconvinced by this assurance and are also concerned that the debt providers will assume the loan compliance audits are reviewed by the audit committee in accordance with past practice. You are also aware that the continuing support of the company’s lenders is dependent on a favourable compliance audit.

Given your knowledge of the debt portfolio and the company’s current performance, you are concerned that some figures may have been ‘massaged’.