The Enron scandal is one of the leading corporate collapse of the modern era. Enron’s auditor is held responsible for the manipulation that they have done in the accounting policies of the company.
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Running head: ANALYSIS OF THE ENRON SCANDAL Analysis of the Enron Scandal Name of the Student Name of the University Author’s note
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1ANALYSIS OF THE ENRON SCANDAL Table of Contents Introduction................................................................................................................................3 The issues surrounding the Enron and the auditor of the company...........................................3 The findings from the research of Ruhnke and Schmidt are stated below.................................4 Conclusion..................................................................................................................................4 References..................................................................................................................................5
2ANALYSIS OF THE ENRON SCANDAL Introduction The Enron scandal is one of the leading corporate collapse of the modern era. Enron’s auditor is held responsible for the manipulation that they have done in the accounting policies of the company. From the analysis of the research paper of the Ruhnke and Schmidt it is explained the losses happened to the stakeholders due to the unethical behaviour of the audit firm of Enron. The issues surrounding the Enron and the auditor of the company. The issue surrounding the Enron and the auditor of the company are stated below Auditing issues If the auditor take unfair means while auditing the company’s financial statements then it will affect the interest of the stakeholders(Ojo 2015).The auditors has violated the major principles of the IAASB like, Supporting the global financial stability. Enhancing the quality and standard of auditing. Implementations of the standards of auditing in the organisation(Council 2015). Accounting issues. In case of Enron the auditors though found that the company is not following any principles of GAAP as well as they have violated all the principles of the international auditing and assurance standards board , but they does not inform it to the stakeholders which results in to the failure of the company(Bhasin, 2016).
3ANALYSIS OF THE ENRON SCANDAL The findings from the research of Ruhnke and Schmidt are stated below Misstatements in the financial statements From the research work of Ruhnke and Schmidt it is observed that both Enron and the auditor of the company are equally responsible for the misstatements of the financial statements of the company and the financial transactions are not made in accordance with the principles of the GAAP. The company also violates the principles of IAASB(the international auditing and assurance standard board) which states that, it is the duty of the auditors to set uphighqualityandinternationalstandardtoprotecttheinterestofthepublic.The international auditing and assurance standard board increases the quality and consistency in theentireworldtostrengthenpublicconfidenceintheinternationalauditing profession(Aschauer and Quick 2018). The audit risk model regulate the amount of risk associated with an audit program and the process of managing the risk. The elements of risk model are: Control risk Detection risk Inherent risk In case of the Enron, the auditors overlook case the control risk factor. The control risk is caused due to the absence of the internal control system in the organisation and the auditor Anderson llp has overlooked that, which leads to the occurrence of incorrect financial statements. The auditor also failed to detect the material misstatements in the financial statements of Enron. Conclusion Based on the above discussion it is concluded that both Enron and the auditor Arthur Anderson is involved in the scandal that results in to the collapse of one of the largest
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4ANALYSIS OF THE ENRON SCANDAL company. Both the management and the auditors failed to adopt any transparent method to operate the business and that results in the occurrence of the scandal. References Aschauer, E. and Quick, R., 2018. Mandatory audit firm rotation and prohibition of audit firm‐provided tax services: Evidence from investment consultants’ perceptions.International Journal of Auditing,22(2), pp.131-149.
5ANALYSIS OF THE ENRON SCANDAL Bhasin, M.L., 2016. Creative Accounting Practices at Satyam Computers Limited: A Case Study of India’s Enron.International Journal of Business and Social Research,6(6), pp.24- 48 Council, F.R., 2015. Enhancing Confidence in Audit: Proposed Revisions to the Ethical Standard, Auditing Standards, UK Corporate Governance Code and Guidance on Audit Committees. Ojo, M. (2015). Audits, audit quality and signalling mechanisms: concentrated ownership structures.American Research Journal of Humanities and Social Sciences,1(2). Schmidt,C.R.,2016.STATELEVELMECHANISMSFORLEARNINGFROM WHISTLEBLOWING CASES AT INSTITUTIONS OF HIGHER EDUCATION IN THE UNITED STATES.Problems of Management in the 21st Century,11(1), pp.43-56.