In auditing financial statements, it is important to gather evidence and offer absolute assurance of all the general accounting principles and other appropriate standards. Finding information about the business and the risks of a company is important for investors. Moreover, the audits are relevant in preventing frauds of any kind. Notably, some organizations may conspire to provide false reports so as to achieve the desired outcome. In the case of auditing Mountain Resources’ unproved gas properties, the uprising of the property may be misleading to the buyer and potentially result in some loss. Although there are some facts that point to the possibility that the assets have been overpriced, which could have financial and legal implications, the work of an independent auditor does not involve warning clients; hence, Mountain Resource should remain silent.
Arguments for Advising Superfund That Property is Overprized
There are many reasons for providing the advice that $42 billion is overpriced. To start with, in case Superfund runs into a loss, and it becomes clear that the auditors knew about the depreciated value, they may assume that they aided in abetting the fraud. The implication on the reputation of the auditing company will be ruined, and there may also be legal implications (Whittington & Pany, 2018). Specifically, Super Fund may claim that the silence of the auditors significantly contributed to their loss, and the level of exposure, in this case, would be around $ 33 million, which is obtained after subtracting $9 million from $42 million.
Moreover, if Super Fund fails to evaluate the overstated pricing of the ail reserves before settling the payment and subsequently writes the excessive price to estimated recoverable value, the result will be the sustenance of a huge loss. As accountants, it is important to hold in high regard caring for the clients and helping them to avoid impending bankruptcy. Therefore, it is the moral obligation to inform the client that the assets may be over-priced and that they may incur significant financial losses.
Arguments for Remaining Silent
However, providing Super Fund the information about the properties is a direct violation of the ethical responsibilities of maintaining confidentiality to Mountain Resource. Although the grounds for speaking are sensible, unveiling such information will be considered unprofessional. Moreover, since the people work as independent auditors, the issue of transaction price does not fall directly under their roles (Çalıyurt, 2019). As things stand, Mountain Resource did the auditing appropriately and without any form of misappropriation to their financial statement. The implication is that informing Super Fund will be acting beyond their scope of work. The other rationale is that the auditors are not experts in the valuation of oil and gas. Their assumption about the pricing and the forecast for future market growth may not be accurate. As a result, talking to Super Fund will mean going with assumptions and not concrete facts regarding the issue.
Verdict on the Forward Action
Informing the Super Fund about the actual pricing of the oil and gas assets will be going against the role of an independent auditor. Despite the fact that Mountain Resource may be more informed than the buyer, they still will be intruding by giving such details. Besides, to the extent of Mountain Resource powers, they have operated ethically and did nothing that can be regarded as illegal. Concerning the possibility that Super Fund may sue the auditors for being accomplices of the overstatement, it is possible to still show documents with evidence that the work by Mountain Resource was done appropriately. Therefore, it is advisable that they choose the option to be, which is to remain silent about what they know.
References
Çalıyurt, K. T. (2019). Ethics and sustainability in accounting and finance. Springer.
Whittington, R., & Pany, K. (2018). Principles of auditing and other assurance services. Irwin Professional Pub.