Reference no: EM132220001

Topic: Auditor's Public Interest Responsibilities and Audit Quality

Background and Context:

In a recent interview with ABC news, the now former Chairman of the Australian Securities and Investment Commission (ASIC) Greg Medcraft warned that:

"We don't want to have another Enron. And the key to not having another Enron is making sure auditors do their job and to get assurance that financials are free of material misstatement"

Enron was an energy, commodities, and services company based in Texas, USA. It was founded in 1985. Prior to its bankruptcy on 31d December, 2001, Enron employed close to 30,000 staff and was a significant electricity, natural gas and communications company, which had reported revenue of nearly US$101 billion during the year 2000.

By the end of 2001, it was revealed that Enron's reported financial position was manipulated by a systematic and preconceived accounting fraud, known since as the "Enron Scandal". Enron has since become known as an infamous case of audacious corporate fraud and corruption.

The scandal also brought into question the accounting practices and activities of many corporations in the USA and was a factor in the creation of the Sarbanes-Oxley Act of 2002. The scandal also led to the demise of the accounting firm, Arthur Andersen, which was Enronis auditor.

In more recent times, according to ASIC, based on samples of key audits performed by Deloitte, KPMG, PWC and Ernst & Young, over an 18 month period up to December 2016, 23% had not provided reasonable assurance that accounts were accurate or free of misstatements.

As stated in the Accounting Professional and Ethics Standards Board (APE B} APES 110 Code of Ethics for Professional Accountants, under Section 100 Introduction and Fundamental Principles, "A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest."

Pre -Assessment Task:

Download the latest APES 110 Code of Ethics for Professional Accountants document. Review all the sections within this document which relate to the Auditor's role in providing reasonable assurance and performing auditing services. Refer to the section in the textbook on "Whistleblowing" on pp 268 - 270, focussing on the paragraphs which mention Enron.

Assignment Question

When sub-standard audits are performed and reasonable assurance cannot be reliably ascertained, there are consequential risks for key stakeholders, including auditors. In light of this, perform the following key assignment tasks:

1. Perform a key stakeholder analysis for an AS' listed company. Explain how the key stakeholders would be affected if material misstatements are not properly identified, disclosed or adjusted for in the finalised financial statements. What are the key risks posed to each key stakeholder you have identified? (300 - 400 words)

2. Consider the concepts of independence and "whistleblowing" in relation to auditors. How do these concepts relate to the public interest requirements mentioned in the APES 110 Code of Ethics for Professional Accountants document? (300 - 400 words)

a What lessons can auditors learn from the Enron scandal and in particular from the behaviour of Arthur Andersen? (750 - 900 words)

4. With reference to the APES 110 Code of Ethics for Professional Accountants document and the ASIC website, research "audit quality" and discuss what auditors need to do to address the "warning" noted in the statement made by Greg Medcraft above. (750 - 900 words)

Report Structure:

Executive Summary

- The Executive summary should be concise and not involve too much detail.
- It should make commentary on the main points only and follow the sequence of the report.
Write the Executive Summary after the report is completed, and once you have an overview of the whole text.
- The Executive Summary appears on the first page of the report.

2. Contents Page -This needs to show a logical listing of all the sub-headings of the report's contents.

3. Introduction A short paragraph which includes background, scope and the main points raised in order of importance. There should be a brief conclusion statement at the end of the Introduction. (100 200 words)

4. Main Body Paragraphs with numbered sub-headings Detailed information which elaborates on the main points raised in the Introduction. Each paragraph should begin with a clear topic sentence, then supporting sentences with facts and evidence obtained from research and finish with a concluding sentence at the end.

5. Conclusion - A logical and coherent evaluation based on a thorough and an objective assessment of the research performed. (100 200 words)

6. Appendices - Include any additional explanatory information which is supplementary and/ or graphical to help communicate the main ideas made in the report. Refer to the appendices in the main body paragraphs, as and where appropriate.

Attachment:- Audit Assignment Requirements.rar