Topic: Auditor’s Public Interest Responsibilities and Audit Quality
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 3rd 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 Enron’s 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 (APESB) 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.”
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:
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