The Role of Audit in the Collapse of Enron and Lehman Brother

2959 WordsMar 30, 201312 Pages
Hamza Ahmad Hamza Ahmad Hamza Ahmad STUDENT ID: W12302464 Hamza Ahmad STUDENT ID: W12302464 Advanced Audit Course work Advanced Audit Course work Contents EXECUTIVE SUMMARY 1 INTRODUCTION 3 CHANGES IN REGULATIONS 3 CHALLENGES AND RESPONSIBILITIES 4 RESPONDING TO THE CHANGES 4 Research Studies 4 Response to Surbanes-Oxley Act 5 Response to the European Commission’s proposals 6 Enron Failure 6 Arthur Andersen failure 6 Lehman Brothers failure 6 Ernst & Young failure 7 Detection of fraud 7 Going Concern 7 MINIMISING LITIGATION RISK 7 Obstruction of Justice 8 Consultancy service 8 Conservative Audit 8 Conclusion 8 References 9 EXECUTIVE SUMMARY In the UK, European Union and the…show more content…
(ICAEW 2009). CGAA further concluded that there was little clear evidence that joint provision of audit and NAS had in fact compromised auditor independence. Nevertheless, CGAA recommended ‘tougher and clearer safeguards to ensure that join provision of audit and non-audit services does not undermine auditor independence in fact or appearance’. This was to be achieved by independent setting of auditors’ ethical standards and an enhanced role for audit committees in overseeing auditor independence and NAS provision. (ICAEW 2009). In Europe and other parts of the world, auditing came under severe scrutiny which led to the European commission issuing a Recommendation on auditor independence in 2002 which included restrictions on auditors providing several non-audit services (European Commission, 2002). In addition to this an organisation was created for regular inspection of public interest audit in 2004 by the newly established Professional Oversight Board for Accountancy (FRC, 2009). Other regulations introduced included the EU Green Paper which aims to ensure that investors can rely on the accuracy of the audited accounts and to enhance the EU’s protection against the type of scandals that occurred in companies such and Parmalat and Ahold (i.e. cases of fraud not discovered by the auditors). To make matter even more complicated in 2004 the Auditing Practices Board (APB, 2004) issued Ethical Standard 5

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