Audit, Assurance and Compliance

Assessment mainly evaluates the ethical dilemmas that are faced by auditors while preparing the annual report of an organization. Adequate evaluation on the Enron scandal has been conducted to identify the lessons that can be learnt by the auditor is regarding the problems and behavior of Anderson.

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, Assurance and Compliance
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Executive Summary:
Assessment mainly evaluates the ethical dilemmas that are faced by auditors while preparing the
annual report of an organization. Moreover, the analysis is based on the methods and different
level of measures that can be taken by the audit committee for reducing the unethical conduct of
an auditor. Furthermore, the lessons that have been learnt from the Enron case has been
discussed which is essential for the audit committee to comply in future. The identified lessons
would eventually help the audit committee to improve the current Audit procedures and impose
different incentives to improve the audit quality. Adequate evaluation on the Enron scandal has
been conducted to identify the lessons that can be learnt by the auditor is regarding the problems
and behavior of Anderson. Moreover, the discussion on the product quality and warning that has
been mentioned by Greg Medcraft has been analyzed for detecting the measures that can be
taken by the auditor to improve the audit quality. Enron scandal has been a major contributor to
the measures that can be used by the auditors for minimizing the negative impact of material
misstatement in financial reports.

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Table of Content
Introduction:....................................................................................................................................3
1. Performing a key stakeholder analysis for the ASX listed company:.........................................3
1.1 Discussing about the impact of material misstatement on key stakeholders:............................4
1.2 Identifying the key risk posted to each key stakeholders that has been identified:...................4
2. Considering the concepts of independence and whistleblowing with APES 110 Code of Ethics
for Professional Accountants document:.........................................................................................5
3. Identifying the lesson that will be learnt by auditors from Enron scandal and Arthur Anderson
behaviour:........................................................................................................................................7
4. Discussing about audit quality and warning mentioned by Greg Medcraft:.............................10
Conclusion:....................................................................................................................................13
References and Bibliography:........................................................................................................14

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Introduction:
The assessment aims in evaluating the measures that can be used by the auditor's for
minimizing the negative impact from material misstatement in the financial reports of
organization. Auditor report directly or shows the stakeholders of the organization regarding the
current productivity and truthfulness of the financial information presented in the annual report.
Adequate evaluation regarding the consequence of Material misstatement on the financial report
is discussed for the key stakeholders of an organization. Furthermore, the concept of
whistleblowing is relatively compared with the APES 110 Code of Ethics for Professional
Accountants Document. Adequate evaluation on the Enron scandal has been conducted to
identify the lessons that can be learnt by the auditor is regarding the problems and behavior of
Anderson. Moreover, the discussion on the product quality and warning that has been mentioned
by Greg Medcraft has been analyzed for detecting the measures that can be taken by the auditor
to improve the audit quality. Enron scandal has been a major contributor to the measures that can
be used by the auditors for minimizing the negative impact of material misstatement in financial
reports.
1. Performing a key stakeholder analysis for the ASX listed company:
After analysing the financial report and current stakeholders of CSR Limited, it could be
identified that the major stakeholders of the organisation our investors, suppliers, and business
partners. The stakeholder’s analysis directly helps in identifying the interest of stakeholders
versus the influence of the stakeholders. The stakeholder analysis allows an organisation to
understand the impact stakeholders can have on its operations. The stakeholder analysis of CSR

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Limited directly indicates that the business partners and investors are considered key players in
this stakeholder analysis, as they can shape the operations of the organisation. Brown (2018)
stakeholder analysis allows the organization to identify the level of impact different stakeholders
can deliver on their operation, due to non-availability of adequate information.
1.1 Discussing about the impact of material misstatement on key stakeholders:
The major investors of the organization are retail shareholders, credit agencies, and
institutional investors, who rely on the annual report of the organization. Therefore, the investors
rely on what is information of the organization for understanding their future performance and
current financial strength. Any kind of material impact on the annual report of the organization
directly hampers the decision-making capabilities of investors, as they are not able to identify the
accurate level of material misstatement in the annual report. The stakeholders of the organization
also comprise of supplier who needs to be provided all the relevant information regarding the
current financial position of the organization. The suppliers evaluate the annual report to identify
the current credibility of the organization and detect whether they are able to support the short-
term obligation with their current assets. The accurate identification of material misstatement in
the annual report will not allow the supplier adequate information for making decisions
regarding the credit line of the company (Heenetigala & Armstrong, 2017).
1.2 Identifying the key risk posted to each key stakeholders that has been identified:
The relevant risk for each stakeholders of the organization increases if material
misstatement is present in the annual report. The presence of material misstatement and non-
accuracy in the annual report will directly result in Alternative decisions from the investor. The

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valuation of the company will be made on the basis of the annual report comprising of material
misstatement. Moreover, investors will not be able to comprehend and detect the actual financial
position of the organization while making investment decision, which poses major risk for the
investors. The material misstatement in the annual report will also have negative impact on the
suppliers of the organization, as they will not be able to identify the accurate level of credit that
could be issued to the company. The business partner would also not be able to fully trust the
organization, as they are not aware of the material misstatement in the annual report. The non-
disclosure of adequate information by the organization will directly reduce the trust levels of the
stakeholders for the organization (Nalewaik & Mills, 2016).
2. Considering the concepts of independence and whistleblowing with APES 110 Code of
Ethics for Professional Accountants document:
Auditor's Independence principal directly in the case that the auditors of the organization
need to be independent of their client. This directly states that the auditor's cannot link with their
relation with the organization in any sort to support the client. The auditors are enforceable from
the legal perspective and the organization needs to provide all the relevant information to them
for identifying any kind of unethical measures taken in formulating the financial report.
Furthermore, audit independence principal directly allow the auditors to provide all the
information and detect any kind of ethical breach and material misstatement that occurred during
the financial year. The audit report provided by the auditor's provide all the relevant information
regarding the current operations of the company, which is termed as a significant audit
consideration.

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Moreover, whistleblowing is a concept, which can only relate to a situation when the
employee of an organization discloses the malpractices of the company to the world with other
means of communication. Therefore, whistleblowing is considered an ethical measure from the
perspective of an employee when the whole organization is conducting unethical operations.
Furthermore, from the valuation it could be identified that positive Association between the
auditors Independence and whistleblowing process can be identified from the audit procedures.
Audit procedures allow the auditor has to identify and pinpoint all the information and
malpractices that has been conducted by the company during the financial year (Bepari &
Mollik, 2016).
The APES 110 Code of Ethics for Professional Accountants document directly states all
the relevant information regarding that the audit procedures that needs to be followed by the
auditor. Moreover, the code directly provides all the relevant information regarding the necessary
rules, guidelines for carrying out the audit function by the auditor. Moreover, the section
210.11.1 of APES 110 directly states that auditors need to seek permission from the audit client
before contacting the past auditor. The section directly states that auditors need to take
permission from the organization before consulting the old auditor regarding the normal audit
nomination. Moreover, the auditor needs to communicate with the old Auditor in writing for
gathering all the relevant nomination related decisions of the organization.
APES 110 Code of Ethics for Professional Accountants document directly discusses
about the safeguards of the whistleblowers, which allows the employees to disclose unethical
operations of the organization. The section 100.1 of APES 110 directly states that whistleblowers
have the right to file Complaints against the organization out of ethical doctrine. However, the
whistleblower needs to provide all the relevant evidence regarding the unethical activities of the

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organization during the complaint filing or the complaint will not be lodged against the
organization (Dowling, Knechel & Moroney, 2018).
3. Identifying the lesson that will be learnt by auditors from Enron scandal and Arthur
Anderson behaviour:
The Enron scandal questioned the standards of financial report that was provided by the
organization to the investors. The scandal highlighted the problems that were not current
evaluated by the auditors to identify the accurate material misstatement of the organization. The
scandal also provided information regarding the manipulations hand unethical measures that was
taken by the management to formulate the balance sheet as per their requirements. There are
relevant lessons that can be learnt from the Enron scandal and from the behavior of Arthur
Andersen, which are depicted as follows.
Auditor’s Professional dilemma:
The professional term of auditors is relatively high, where investors rely on the auditor's
report to detect the accurate financial performance of the organization. The Enron scandal shook
the very trust of the investors regarding the auditor’s report and highlighted that manipulations
can be conducted if unethical measures are used. Therefore, the audit committee leads to work
with other auditors to increase the trust on the audit profession by conducting accurate audit
reports of organizations. Moreover, the audit committee needs to force the auditor's to adhere to
the international audit principal while conducting their operations in an organization. The audit
committee also needs to enlighten the auditors regarding the non-avoidance of any audit
guidelines and regulations in their operations as it might negatively affect the image of Global
audit profession (Wilkins, 2017).

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Communication between audit committee and auditor:
Scandal of cannot directly highlighted the problems between the communication of
External Audit and internal auditor of an organization. The continuous continuation between the
audit committee and the auditor of the organization would eventually help in disclosing fair and
accurate value in their annual report. Therefore, the independent audit committee and the audit of
the organization need to maintain adequate communication and relationship to ensure a
successful audit process for the organization. Without the presence of external audit committee
the internal auditors does not provide adequate information in the annual report has seen in the
Enron case. Consequently, the audit committee needs to provide periodical education forum for
the members of the auditor's and external auditors of Corporations (Sutherland, 2017).
Internal audit control:
Internal audit control is one of the major problems that were detected from Enron
scandal, as the manipulations conducted within the organization was highlighted in the annual
report. Enron scandal directly illuminates the audit committee to ensure that strict internal audit
control need to be conducted by the organizations as it helps in detecting any kind of material
misstatement that has be represented in the financial books. The internal audit control needs to be
conducted by the auditor's in accordance with the auditing standards, which highlights the key
responsibilities that needs to be conducted during the process. Moreover, the internal audit
control would eventually allow the auditor to maintain the balance between benefits and cost,
which is essential for identifying the current financial position of an organization (Hoque &
Pearson, 2018).
Increase in supervisory:

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Enron scandal also highlighted the problems regarding the supervisory approach of the
auditors, as with adequate methods the audit committee to increase the audit quality. The audit
committee could increase the incentives rather than punishment to motivate the auditors in
increasing the level of audit quality. With the help of supervisory action, audit committee can
separately identify the level of limitations and strength of the auditing practices that is being
deployed by the auditor. The Enron scandal has altered the Perspective of the auditor’s, which
initiated the augmentation of Sarbanes Oxley Act. This act as military allowed auditing
committee to identify the organization that does not disclose all the relevant report to the public
(Soh & Martinov‐Bennie, 2018).
Improving the standard of auditing:
The standards of auditing were manipulated during the Enron scandal, which allowed the
organization to significantly alter its financial report to serve the management purposes.
Therefore, the lesson directly indicates that robust accounting guidelines and Standards need to
be introduced by the regulator of effectively improving the current auditing procedures. This
would eventually ensure that no other organization is able to manipulate the accounting and
auditing process to support their unethical needs (Bik & Hooghiemstra, 2018).
Preparing the accurate book:
Enron scandal directly highlighted the problems that were related to the preparation of
financial book of the organization. The management directly recruited the auditor for personal
interest, which help them to formulate the annual report as per the requirement. Therefore, it
could be understood that government Agencies needs to perform the audit responsibilities in
order to minimize the occurrence of future scandals. Moreover, the regulators also need to

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stricken the regulations and guidelines for the audit profession, which might reduce unethical
measures conducted by auditors for higher fees (Hay, Stewart & Botica, 2017).
Analyzing the behavior of Anderson:
The Enron scandal highlights the actual behavior of Arthur Andersen, as the audit partner
of the organization, which directly portrays his behavior towards audit profession. Arthur
Andersen was one of the oldest audit firms during the period of the Enron scandal where the
inaccuracy in the financial report directly portrayed the irresponsibility that has been conducted
by Anderson. Investors had full confidence in the audit report of Arthur Andersen and would
take adequate investment decision on the perspective of the disclose report. However, after the
disclosure that Arthur Andersen was one of the business partners of Android and is some of the
audit executive also employed by the organization, the trust of the shareholders started to
decline. The auditors of Arthur Andersen also destroyed the critical order documents of the
organization, which directly indicates that Arthur Anderson did not comply with the needed audit
standards and regulations the time of auditing the financial report.
4. Discussing about audit quality and warning mentioned by Greg Medcraft:
Audit quality is an effective measure that needs to be maintained by the auditors of the
organization and the external auditors, as it helps in reducing the material misstatements in the
annual report. Auditors to needs to conduct for carry out the audit activities in compliance with
the guidelines and regulations of the audit committee, which allow them to prepare the ethical
audit report. Moreover, the quality of the audit is influenced by different factors such as nature of
audit, audit client, and extent. These identified factors play a vital role in preparing the audit

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report with high quality and provide adequate information to the shareholders regarding the
current financial statement of an organization (Knechel & Salterio, 2016).
The statement made by Grey Medcraft directly highlighted the problems that might incur
in Australia, as there are many organizations, which are following the steps of Enron. Moreover,
adequate steps need to be taken by the audit committee for undertaking the auditing standards of
the four accounting organizations currently present in Australia. Organizations such as PWC,
KPMG, Deloitte and Ernst & Young need to comply with the adequate audit procedures and
control while preparing the annual report of Australian companies. Medcraft directly highlighted
a warning signal to the Australia regarding the occurrence of another financial crisis as the
organizations books are not check appropriately by the auditors. Medcraft directly assured the
Australian citizens regarding the manipulations that were conducted by the auditors while
preparing the audit report and analyzing the financial statements of organization.
The auditing firms such as PWC, KPMG, Deloitte and Ernst & Young Tips to highlight
the issue regarding the organization immediately, as it might help in reducing the occurrence of
another Enron scandal in the region. The auditor needs to carry out adequate audit procedures
and identify any kind of material misstatement in the financial report. Moreover, the auditor's
need to follow the Section 2 of APES 110, while assuring that the financial reports show fair
insights of the financial standing of an organization. The statement of Medcraft directly
highlighted that audit failures for the main reason behind the financial crisis, which led to the
downfall of Enron and hampered the financial sector. Therefore, the auditor's need to be
accountable for all the financial statements that is analyzed for Major stakeholders. This would
eventually help the stakeholders to identify the relevant necessary financial information of an
organization while making adequate investment decision (Rowlands, 2017).

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Statement of Medcraft also highlighted that the organization does not possess adequate
skills and experience for carrying out the auditing process. This is the main reason why the
overall audit committee has been established to conduct the external audit of an organization.
Moreover, the controllers need to provide immunity to the audit partners of the organization for
adequately rotating the audit staff. This could eventually help in minimizing any kind of
unethical behavior of the audit staff towards the organization. The rotation of the audit partner
would eventually force the organization to comply with the rules and do not provide any kind of
lucrative offers to the auditor's. Therefore, Section 290.155 of APES 110 can be altered, where
we ordered partners of the organization needs to be changed every 7 years. Moreover, external
reviews also need to be imposed on the organization for effectively safeguarding the audit
process and report of the organization (Apesb.org.au, 2019).
Furthermore, the auditor needs to comply with Section 100.1 of APES 110 and Section
100.2(c) of APES 110, while preparing the audit report. Compliance of the above section would
eventually safeguard the auditor's report and reduced the negative impact on financial report of
the organization. When the order track crosses the minimum level and while is the ethical and
fundamental auditing is doctrine the auditor needs to signal a warning to the stakeholders of the
organization. This would eventually help the stakeholders to make adequate decision regarding
their investments in the organization. The statement of Medcraft directly indicated that with the
help of adequate audit procedures and Audit standards the financial crisis in future could be
avoided by Australia (Asic.gov.au, 2019). The auditors of the country need to follow adequate
audit procedures and provide any kind of warning regarding the current financial position of an
organization if ethical operations are being conducted. This will help the authorities to grasp the
situation before it could get out of hand like Enron. Hence, the auditors can added to the

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necessary standards and guidelines for offering the audit services to the organization, while
providing high quality audit report to the stakeholders.
Conclusion:
The assessment mainly evaluates the ethical dilemmas that are faced by auditors while
preparing the annual report of an organization. Moreover, the analysis is based on the methods
and different level of measures that can be taken by the audit committee for reducing the
unethical conduct of an auditor. Furthermore, the lessons that have been learnt from the Enron
case has been discussed which is essential for the audit committee to comply in future. The
identified lessons would eventually help the audit committee to improve the current Audit
procedures and impose different incentives to improve the audit quality. The case study of Enron
highlights the problems that were faced by the auditors of Arthur Andersen after the detection of
their unethical conducts in analyzing the financial statement and preparing the auditor report.
The analysis on the overall statement that was mentioned by Greg Medcraft has also been
conducted in this assessment, which directly highlights that auditors need to provide ethical
reports regarding the operations of an organization.

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