Auditing Lesson-Enron's Scandal
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- Date Submitted: 05/25/2014 11:33 AM
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Introduction
Auditing relies on authorised auditors to enforce “a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users” (ASOBAC). As an auditor to add credibility to a financial report, independence is required as one of the fundamental principles through massive amount of countries. However, what if an auditor involved with corporation in failure of meeting independence requirement? The roles of auditors having involvement with corporation in corporation collapses will be briefly discussed in the following article. Those companies will contain but not be limited to Australian ones. Also what regulation concerns about those collapses may be analysed.
Corporation in United States-Enron Scandal
One of the most famous accounting and auditing failure events is Enron Scandal. Enron, known as a large-profit energy corporation, used to be rated as one of the top electricity, gas, and telephone companies before its scandal in 2001. Deegan (2009) describes what happened to Enron:
The boss of a short-run invest company with good reputation denoted his suspicion about Enron’s profit patterns, analysing Enron’s rate of return was 5% in 2000, whereas decreased to below 2% in 2001. He also noticed Jeffery Skilling, a long-time chief executive officer kept on sale of his holding shares, which was against laws (directors cannot sell their shares until they leave the board). Suspicion rose and the share price of Enron quickly fell down by almost 50%. Jeffery Skilling resigned in August 2001. Enron was found to have mint deficit leading to bankrupt four months later.
Despite other factors involved with Enron Scandal, the audit firm, Arthur Andersen, who took auditing for Enron over the past 16 years, was considered to fail to some extent, or at least to have...
Auditing relies on authorised auditors to enforce “a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users” (ASOBAC). As an auditor to add credibility to a financial report, independence is required as one of the fundamental principles through massive amount of countries. However, what if an auditor involved with corporation in failure of meeting independence requirement? The roles of auditors having involvement with corporation in corporation collapses will be briefly discussed in the following article. Those companies will contain but not be limited to Australian ones. Also what regulation concerns about those collapses may be analysed.
Corporation in United States-Enron Scandal
One of the most famous accounting and auditing failure events is Enron Scandal. Enron, known as a large-profit energy corporation, used to be rated as one of the top electricity, gas, and telephone companies before its scandal in 2001. Deegan (2009) describes what happened to Enron:
The boss of a short-run invest company with good reputation denoted his suspicion about Enron’s profit patterns, analysing Enron’s rate of return was 5% in 2000, whereas decreased to below 2% in 2001. He also noticed Jeffery Skilling, a long-time chief executive officer kept on sale of his holding shares, which was against laws (directors cannot sell their shares until they leave the board). Suspicion rose and the share price of Enron quickly fell down by almost 50%. Jeffery Skilling resigned in August 2001. Enron was found to have mint deficit leading to bankrupt four months later.
Despite other factors involved with Enron Scandal, the audit firm, Arthur Andersen, who took auditing for Enron over the past 16 years, was considered to fail to some extent, or at least to have...