Question

As an auditor, you may have access to the internal information of your clients. Discuss what rule of conduct was violated by Scott London in this case.

Answer 1

Auditor is governed by principals of code of ethics whether they are in service or public practice. They have to maintain Integrity, confidentiality, Objectivity, professional due care and due diligence and professional behaviour. As per terms of engagement confidentiality is one of the clause and need to be maintain as per contract of engagement including over the period extended after closure of contract as requested in contract. Insider information  is regarded as material, non-public information. the information can be passed from a person working within the company to outside individuals who trade based on the information. Here in this case, Scott has pass on the confidential information to his friend and in exchange received kind consideration also. in this case Mr. Shaw has also benefitted from that information. and in return paid back few valuable things.

The action taken by the Client removed KPMG as an auditor due to the action of scott and passing on valuable information is seems justified and tenable in law.