1. As a prospective analyst or audit, what are the main ethical requirements you must
adhere?
a. Integrity. Analysts and auditors shall maintain integrity and honesty in their work
and in their communications with related persons. They should disclose results and
facts as required in strict accordance with standards, and shall not provide false,
misleading or unsubstantiated information and statements.
b. Objectivity and independency. Analysts and auditors are required to make
independent and fair judgments and decisions based on objective facts and expertise,
without being influenced by the biases of themselves or others, and without
favoring either party. When there is a conflict of interest, people and information
should be avoided.
c. Professional Competence and Due Care. Analysts and auditors must provide
professional services with adequate knowledge, skills and experience, and follow
professional codes and ethics. At the same time, they should keep improving their
capacity to provide high-quality services.
d. Confidentiality. Analysts and auditors are required to keep confidential
information acquired in the course of their work and must not disclose confidential
information to third parties without the authorization of the client or to the extent
permitted by laws and regulations. At the same time, they cannot use confidential
information for their own benefit or the benefit of a third party.
e. Professional Behavior. Analysts and auditors are required to comply with
applicable laws and regulations and not engage in conducts that may damage their
professional reputation. They should be objective and decent in front of the public
and should not damage their professional image.
2. How do these ethical requirements impact your work?
These ethical requirements force us to be strict with ourselves, so as to provide
service with higher quality. With these requirements, we need to always be cautious in
the work, pay attention to our words and deeds, and consider problems as objective and
comprehensive as possible. At the same time, we need to continue to learn careerrelated knowledge and improve professional ability.
3. What went wrong in the case of Carillion and KPMG scandal? Did the auditor
comply with the requisite standards? If yes, explain; if no, explain.
From 2009 to 2018, Carillion's debt growth far outpaced its revenue and asset
growth. However, in the case of Carillion is heavily in debt, KPMG did not disclose the
company's risks in terms of financial stability and debt. Instead, it still issued an audit
opinion that Carillon could continue to operate for at least three years, and did not fully
disclose and highlight key issues such as the company's rising debt level and cash
shortage. That has led investors to remain optimistic about Carillon's health, even if it
is at odds with the company's actual revenues and operations.
I don't think that auditor meets with the requisite standards. First, it violates integrity.
The auditor did not specify the accounting methods used by Carillon. Carillion uses an
aggressive accounting method - recording profits before they are realized. Although the
company signed many contracts with customers, the ultimate profitability was
unknown, and the company ran out of cash for the contracts. Auditors should be aware
that this particular accounting method can cause companies to overestimate their profits
and understate their cash flow and debt pressures, yet auditors do not reasonably
disclose the risks associated with contracts. In addition, in Carillon's annual report, its
most valuable asset is the company's goodwill. The auditor does not adequately test the
reliability of cash flow in the assessment of goodwill impairment. In addition, KPMG
lacks objectivity and independence because there is a conflict of interest between
KPMG and Carillon, as KPMG audits Carillion, investor SLAS, hospital companies
and pension plans, which may influence auditors' impartiality.