Ethics:

Ethics in the accounting profession is defined as guidelines and principles. It includes laws and standards of behavior.

Legal liability:

Legal liability is defined as the responsibility of an individual, professional CPA in their course of action should be under the law.

Auditor:

The auditor is the person hired by the owner for a systematic examination of books of accounts of the company. The auditor uses its professional knowledge and gathers evidence. It should be a question minded, plan, and being alert to the condition of the misstatement due to fraud and error.

In this case, the lawsuit of security fraud is filed against the D Corporation and USF Inc., for accounting fraud. The Ahold improperly consolidated the revenue from the Joint ventures. From the promotional allowances, USF falsely reported its income statement. The company is involving in misrepresentation of facts and omitting important financial information. They do not follow an internal rule, how to run the organization, and ignored corporate ethics they might have. They did not follow the industry standard and professional code of conduct.

The company auditing is handled by the D &T, as per the auditor he should use its professional knowledge and gathers evidence. He should be a question minded, plan, and being alert to the condition of the misstatement due to fraud and error. D should follow the three types of substantive test to finds out the internal risk and misstatement in the financial statement:

1. The substantive test of the transaction is conducted to gather the information related to revenue and expense (items of the income statement).

2. Substantive test of balance (to check the accuracy of the account balance and amount of monetary transaction gather evidence from the balance sheet related to assets, liability, and equity).

3. Analytical procedures to compare last year's financial ratio with the current year.

The audit report is mandated by GAAS (generally accepted auditing standards). It says the auditor must obtain a sufficient document during the performance of the audit procedure and the report should be written in a standard format. An auditor should work with a high sense of integrity and know what is right and just, must be independent from the client to maintain public confidence in this profession and exercise due care. 

D should ask the management for the documentation to support the transaction and statement. The auditor failed to deduct fraud and not properly did his job. The shareholders are a person who invests their money in the stock of the company. The D auditor violates its obligation to shareholders. He held liable for the accounting fraud committed by the company and breached his professional skepticism to get close corporation executives and sign off materially misstated reports that misled the shareholders.