Enron is the big business let-down in history of USA, and representatives and controllers have created the slide of hearings and inquiries. In the case, they are searching for recommendation, which can help avoid same conditions in the upcoming period; audit control is the practical place to start. In addition, this time the accounting industry can search slight understanding for the objection. In the following parts lesson for the auditors from Enron scandal, the concept of independence and the concept of whistleblowing in respect of the auditors, Audit quality and requirement to address the warning stated in the statement made by Greg Medcraft, and key stakeholders analysis of Wesfarmers limited is discussed and critically examined.
Key stakeholders analysis of Wesfarmers Limited-
It is responsibility of auditor to prepare the plan and conduct audit to get the proper guarantee regarding whether financial statements of company is free of material misstatement, if by the reason of the errors and frauds. Though, main focus puts on the deliberation of frauds of auditors in conducting the audit of the financial statements of company, this is the duty of management to create and make the process and programs to stop, prevent, and explore the frauds.
If material misstatement would not be properly detected, then interest of key stakeholders will be affected. The audit risks involves the elements, which may be the reasons of the material misstatement, errors or blunder in financial statements of the company. It is related to the auditors of the company in the direct manner. These business risks are related to the corporation itself, involving the stakeholders of the company. Whereas, these risks are very dissimilar, if there are big business risks they can lead to high discovery of the audit risk. To make sure that the business risk is measured in the planning of audit, the top down strategy is stimulated. It is required to make sure that the auditors have the knowledge about the environment of the corporation before conducting the audit.
Further, there are certain types of stakeholders that face some kinds of risks due to material misstatement. These are as below-
Henceforth, these are the investors and stakeholders that are influenced by the misstatements occurring in the financial statements.
The majority of matters like Enron case, in which the accurate information is not stated, create the disbelief in the key stakeholders. The key stakeholders of the Wesfarmers Limited consider the financial statements as value investing properties. In case of material misstatement in the financial statement, the value can be decreased or badly affected. If the key stakeholders of Wesfarmers limited like investors or customers will get the improper or wrong information related to investment or any other relevant information because of material misstatement, it may harm the image of company. Thus, it is required by the auditors to prepare the financial statements without misstatement.
The idea of Independence is essential to compliance with the principle of honesty and fairness. This Code follows the conceptual framework, which needs the recognition and examination of fears to independence so that any fears made are decreased to the satisfactory level by of safeguards (Ralph, et. al, 2018). The section 290 of the Code states independence needs for Audit and Review Engagement that are Assurance Engagements where Member in Public Practice states the decision In the past economic data. The independence contains the independence of mind. The independence also contains the independence in appearance. The prevention of particulars and situations, which are so important that the practical and informed third people will be expected to give decision, considering all the particular realities and situations, that the members of the firm or the members of audit team, honesty, independence, or practised uncertainties have been contained.
Further, the distinctive mark of the auditing is its approval of the liability to perform in interest of the public. Consequently, the duty of member is not wholly to fulfil the requirements of the clients and the workers individually (APESB, 2010). In context of performing the public interest, the member should notice and conform to the code. In the case where, the member is restricted from conforming with some parts of the code by the rules and regulations, then it is required by the member to comply with each part of the Code. The brief summary of the fields an auditor is required to be alert of and apply proper replies to involve:
Moreover, it contains the moral issues and legal issues, whistleblowing in APES, and legal needs as they consider to whistleblowing for member in businesses and in the public practice. It is required by the members of CPA Australia that they should act according with the laws, related norms, and the By-Laws (Jones, Comfort and Hillier2014). Various hiring organisations have been developed the procedures regarding how non-compliance by the hiring company must be raised within. These procedures and protocols can permit the cases to be noted secretly over chosen channel (Bayne, Schepis and Purchase, 2017).
The failure of Enron and the part of the auditor, Arthur Andersen & Company, have stimulated the arguments in occupation, amongst supervisors and inside Congress over the upcoming period of business. Stockholders, involving various own employees of Enron, dispensed billions of dollars in Enron as it stated solid profit, only to see the stock decline to closely nothing among suspicions about the dependability of financial statement of company. There are various reasons of the failure of Enron. Among them are the conflict of interest between role played by Arthur Andersen, as an auditor however, also as advisor of company; the absence of consideration stated by the BOD members of the Enron to off-book financial companies with which Enron made business; and the absence of faithfulness by the management about the health of corporation and the business function. In certain manners, the beliefs of Enron was the main reason of the failure. It is believed by the senior executives, that Enron had to be good at all, it did and that they had to secure the images and the reimbursement as the most popular administrators. When certain of the business and dealing undertakings initiated to execute badly, they made effort to cover the personal let-downs.
In United States of America, the Enron scandal is the very important commercial failure since the failure of various bank loans and saving during year 1980. The Enron scandal states the requirement for important reforms in the corporate governance and bookkeeping in the USA, as well as for the close look at moral excellence of values of business commonly and of business companies in USA. The auditing firm of Enron, Arthur Andersen, is searching progressively bad in the relating story. It has demanded it was surprised by the Enron failure because the Enron had concealed certain particulars of the off-balance-sheet dealings including private corporations. The External auditors comprehensively evaluate the financial statements of the company every year to authenticate to stakeholders that general financial statements show accurate financial statement of corporation (Bhattacharjee, Maletta and Moreno, 2015).
It is analysed that these audit problems have found several periods in the commercial circle; however, they have certainly not concerned critical apprehensions. In year 2000, the former SEC chairman Arthur Levitt was not succeed in the movement to make the rules that will have restricted auditors from performing as the advisors for the similar clients (Li, et. al, 2015). Faced with opposition from certain large accounting companies, the SEC dampened the rule considerably. It is required by the Federal Securities law that the accounting statements of openly operated companies be authenticated by the independent auditor. The outside audit of Enron have taken great attention. When the external audit does not stop companies from creating the financial errors, let alone insolvency, the issues with latest audit of Enron let alone bankruptcy, issues with latest audits of Enron can have contributed to rapid increment and severe decline in the price of the stocks. Further, the internal audit is required to be used to create and observe the financial control system of the company (LópezPuertas?Lamy, Desender and Epure, 2017). The main thing to be learned is that the external audits are supposed to review whether the internal audit system of the company is proper to discover the frauds and the wrongdoings. However, in the case where the internal system is made by the similar corporation conducting external audit, there are rooms for apprehension.
The outside depositors involving the financial entities can have misled regarding the net earnings of the company (that was consequently reaffirmed) and the contingent liabilities ( and contingent liabilities (that were far higher than commonly known). The auditor, Arthur Andersen, has acknowledged certain faults. Arthur Andersen fired the partners in charge of audit of Enron on 15 January, 2002 and Enron terminated Arthur Andersen on 17th January, 2002. The other problem is that whether general consulting work for Enron can have conceded the decision in deciding the scope , duration and the level of audit processes and in questioning that revision be created to financial statement that are the liability of administration of Enron. The questions have raised in respect of the Andersen ending papers and mails related to the audits (Wright, 2016).
In latest period, the apprehensions have fixed regarding whether the auditors are truthfully self-regulating of the client. Accounting firms have come to depend on more on advisory work instead of on old-style audit for the revenue, raising questions regarding the capacity to stand to the client if inappropriate accounting is doubted. Only company board can ask the audit committees to review the future interest conflicts. The case of Enron must recover the problem and win broad help for move to completely separate the contradictory role. Throughout, the yearly audits executed by external auditor, independent auditor, check is executed to ensure that the business is adopting the GAAP constantly. In case they are not, then the business is required to state why they are not, and current foundation to state that what they are doing is moral and proper in the particular condition. This leaves the area open to understanding of what is proper for various conditions (Moore and Blyth, 2018). To make sure the quality of audit, accountant usually depend on peer review made by one firm of others. Andersen was currently provided the clean bill of health by Deloitte & Touche (Klettner, Clarke and Boersma, 2014).
The auditors have key role in achieving the trust or faith of the investors and self-assurance in the excellence of the financial report. In year 2017, in order to increase and continue the audit quality, it is required to prepare financial report. The auditors have the serious part in making sure that the investors of Australia may be self-assured and knowledgeable or well-versed when taking the decisions related to the investment. The high-quality audit helps in maintaining the financial report’s quality (Awadallah and El Said, 2018). The high quality audit also makes able the depositors to be sure of independent evaluation of financial report of the auditors. The audit quality is related to the qualities, which influence the capacity of the auditors to get the basic objectives of audit. The audit quality is required to get the proper guarantee that financial report as completely is free of substantial misstatement. The auditors are required to make sure any insufficiencies discovered are stated or addressed by the audit report of the company (Guénin-Paracini, Malsch and Tremblay, 2014)
As per the section 307 of Corporations Act, this is liability of the auditor to create the opinions in respect whether:
The section 307A of Corporations Act needs the auditors to adopt or use auditing standards issued by Auditing and Assurance Standards Board in conducting audit and evaluation of the financial report of the company. The audit examination programmes target to advance the standards of the audit quality and independence of the auditors in the occupation. The audit quality may be affected by the elements such as-
Further, the role of administrators of the company and audit committee is created to help the audit committee and the administrators in the role in helping excellence of an external audit of the financial report of a company. The quality work and documentation by audited companies to help the judgement on accounting approaches or procedures and estimations is important part of procedure of financial reporting and may enable proper audit (Mubako and O’Donnell, 2018). Audit quality is supported through the quality auditing standards. The International Standards on Auditing are bases for the auditing standards, which are applicable for audit of the financial report under Corporations Act (Sutherland, 2017). In the year 2012 and early year 2013, it is written to the International Auditing and Assurance Standards Board advising chances for improved guidance in the ISAs (Cao, Chychyla and Stewart, 2015).
The suggestions involved improved direction in auditing standards on:
It is required to encourage the IAASB to address the matters, and enhance the directions in the areas such as:
IAASB presently has active assignments on quality control, group audit, use of expert, accounting estimates (involving the values of financial instrument), or risks evaluation. The audit quality is very important. The reason is that the investors rely upon and capacity of auditors is judges at that time. It is duty of the auditors to make sure that in case of the variances, the same should be stated in the audit report. According to the statement provided by the Greg Medcraft poor auditing may be the vicious feature and result in the financial crisis for the corporation (Stefaniak, Houston and Brandon, 2016). The opinion of Greg Medcraft related to the quality auditing was connected with the fact that Australia does not require matters like Enron case, which resulted in commercial failure because of the dramatic shift in the auditing standards (ASIC, 2017). The one and only way to stop the matter like Enron is that the auditors should do their job properly and with integrity. The true financial information can develop the trust in the investors (Howell and Ray, 2015). As per the ASIC sample of main audits by the KPMG, Deloitte, Ernst and Young and PWC, over eighteen months to year 2016, twenty third per cent had not given proper declaration that accounts were correct or without the misstatements. Often what they found was that there was a deficiency of disbelief and commonly the deficiency of stimulating what was in front of them (Gay and Simnett, 2015)
Conclusion
As per the above analysis, it can be concluded that the controllers have not had demanding reasons to follow the matters. However, the administrators at Enron and Arthur Andersen did not set out to have the positive influence on the accounting or other industries. They set out to create as much money for themselves as rapidly as possible. They were desired to do whatever it took to create money. These inconsiderate actions and greediness controlled both entities to an ultimate decline in insolvency. However, the accounting industry responded by addressing the modifications, which will in long-run, increase itself and economy where this presents.
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