Auditor's Public Interest Responsibilities and Audit Quality: Lessons from Enron and Woolworths

Running head: AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Auditor’s Public Interest Responsibilities and Audit Quality
Xuanyu Zhang
AC29180
Author’s Note

1AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Executive Summary
As per the findings of the report, there are risks of several incorrect investment decision by
the key stakeholders of Woolworths Limited in case the auditors fail to properly identify,
disclose and adjust the material misstatements in the financial statements. At the same
time, the requirement for the auditors is to follow the principles of APES 110 to adhere to
the public interest requirements of the profession. The auditors are needed to take the
lessons from the collapse of Enron with the aim to avoid the occurrence of these types of
collapse in Australia.

2AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
Table of Contents
1. Introduction......................................................................................................................... 3
2. Effects of Material Misstatements on the Key Stakeholders................................................3
3. Independence, Whistleblowing and Public Interest Requirements......................................5
4. Lessons from Enron Scandal and Arthur Andersen..............................................................6
5. Audit Quality and Audit Strategies to Address Warning.......................................................9
6. Conclusion.......................................................................................................................... 12
7. References..........................................................................................................................13
8. Appendices......................................................................................................................... 16

3AUDITOR’S PUBLIC INTEREST RESPONSIBILITIES AND AUDIT QUALITY
1. Introduction
Auditing is regarded as a profession where the main responsibility of the auditors is
to provide assurance on the fact that the financial statements of the audit clients are free
from material misstatements (Eilifsen et al. 2013). For this reason, it is needed for the
auditors to perform the needed audit procedures for gaining the needed audit evidences.
While performing the audit operations, the auditors of the companies must consider their
compliance with certain principles and standards like audit independence, professional
scepticism and others (Christensen, Glover and Wood 2013). At the same time, the auditors
are needed to provide utmost attention to the public interest requirements of audit
profession (Chou 2015). First objective of this report is the analysis of the impact of material
misstatements on the decision-making process of the key stakeholders. The next objective
of the report is to discuss about the public interest requirements of the auditors. The next
parts shows the major lessons from the collapse of Enron. The last part discusses about the
procedures to improve the audit quality.
2. Effects of Material Misstatements on the Key Stakeholders
The aim of this part is to measure the impact and risk of material misstatements on
the key stakeholders of Woolworths Limited (Woolworths). There are certain key
stakeholders who will be impacted with the presence of material misstatements in the
financial statements; they are Shareholders, Deb Funders, Employees and Suppliers. The
effects and risks are discussed below:
Shareholders: It can be seen from the appendix that Woolworths has numerous number of
shareholders and the range of these shareholders start from different institutions to
individual (woolworthsholdings.co.za 2019). As they have stake in the company, they largely