Measuring The Value of Honesty, How Ethical Principles Influence Forensic Audits in Uncovering Fraud

Honesty is vital because auditors must report all findings objectively and transparently so that fraud can be properly revealed. If an auditor is dishonest, audit results may be incorrect or inaccurate, preventing fraud from being detected effectively.

This discussion presents case studies on how ethical principles affect forensic auditing, such as in the Enron case and the Toshiba scandal in Japan. The Toshiba scandal, which emerged in 2015, involved senior executives falsifying financial reports over several years, inflating profits by $12 billion.

This scandal highlights problems with the company's financial health, both internally and externally. Despite signs of financial report manipulation, the integrity and objectivity of the auditors failed to detect and report the manipulation in a timely manner, possibly due to pressure from management. 

This case shows how honesty in the audit process was neglected, as falsified financial reports were approved for years without deep investigation. 

The impact of this scandal, based on ethical principles, was that the auditors' failure to act delayed the discovery of fraud. When the scandal finally came to light, Toshiba's reputation was severely damaged, leading to the resignation of top executives, a sharp decline in the company's stock value, and a loss of public trust in major companies in Japan, along with damage to the credibility of the auditors involved.

From this, it is evident that in the Toshiba case, the violation of ethical principles, particularly the lack of honesty and integrity by the auditors, led to involvement in fraud disclosure and caused significant losses to all parties involved.