Audit & Assurance: Stakeholder Analysis, Enron Scandal Experience

This report provides an analysis of audit and assurance principles, focusing on stakeholder analysis of Wesfarmers Limited and experiences from the Enron scandal. It examines the roles of government, suppliers, shareholders, consumers, and employees as stakeholders, emphasizing the importance of identifying material misstatements. The report also discusses auditor independence and whistleblowing, referencing APES 110 and its implications for reporting unethical practices. Furthermore, it delves into the Enron scandal, highlighting lessons learned regarding accounting standards, corporate governance, and the behavior of Arthur Andersen. The report concludes by recommending stricter regulations and disciplinary powers for the audit profession to maintain audit quality and due diligence. Desklib provides access to similar solved assignments and resources for students.

Running head: AUDIT AND ASSURANCE
Audit and Assurance
Name of the Student:
Name of the University:
Author Note:
Word Count: 3000

1AUDIT AND ASSURANCE
Table of Contents
Introduction...............................................................................................................................3
Stakeholder Analysis of Wesfarmers Limited:...........................................................................3
 Government:...................................................................................................................3
 Suppliers..........................................................................................................................3
 Shareholders...................................................................................................................4
 Consumers and Employees:............................................................................................4
Independence and Whistleblowing...........................................................................................5
Experience of Auditor from Enron scandal................................................................................6
Unhooking the books:............................................................................................................6
Better Standard......................................................................................................................7
Behaviour of Arthur Andersen...............................................................................................8
Audit Quality and Steps..............................................................................................................9
Conclusion..................................................................................................................................9
Reference:................................................................................................................................10

2AUDIT AND ASSURANCE
Executive Summary
The report has been prepared for the analysis of stakeholder of a company that is been
listed under ASX stock exchange. Wesfarmers Limited is the company on the basis of which
the analysis is being discussed in the report. The main aspect of the report is reviewing the
experiences of the auditor about the Enron scandal. The requirement of strict standards is
being seen as to avoid the conflicts among the auditors regarding their threat of
independence. The concept of independence of auditor as well as whistleblowing are the
basic need of the auditor`s profession. The report is concluded on addressing auditors about
the level of professionalism and maintain the due diligence while planning and performing
audit.

3AUDIT AND ASSURANCE
Introduction
After applying the applicable sub-standards of audit for concluding their performance on
uncertainty in getting the assurance. It was analyse that the major stakeholders are open to
risk. This includes the auditor as well. The base of the report is stakeholder analysis. The
report provides the evaluation of the impact as the material misstatement is not identified.
In the second part of the report concepts of APES 110 is discussed that focuses on the
whistleblowing that is related to auditors including public interest. In the last part of the
report experiencing regarding the scandal of Enron is discussed with Arthur Andersen
behaviour. The report is concluded stating the recommendations based on the G. Medcraft
for the quality as well as steps that is be maintained and taken by an auditor.
Stakeholder Analysis of Wesfarmers Limited:
The following are the stakeholders identified on the basis of scrutiny that is related to
material misstatement.
 Government:
The entity had communicated both the state as well as central body of government
about the numerous issues that were causing problems in their activities regarding
operations. As the time is limited that to resources the company has problems to
respond actively to the issues to the governing body. The inaccuracy in the tax
calculation that is been presented in the fiscal reports of the company might sight that
there prevails the chances of material misstatement. This signifies a threat alarm for the
government.

4AUDIT AND ASSURANCE
 Suppliers
Any monetary loss and the deteriorating conditions persists in the company would affect
the retail sector of the suppliers in Australia. This would create hurdle on the path of the
company while writing off dues. The company aims out for results that are based on
long-term basis providing advantage for suppliers through realising the debts. This
would help in maintaining sustainability. This would reflect material misstatement on
grouping the liabilities under long-term, valuing non-current assets as they are the
matters of concern for suppliers. (Wong & Millington, 2014).
 Shareholders
Computershare Investors Service Private limited supervises the share of the company.
As every company Wesfarmers too hold annual generals in order to communicate with
shareholders. The company conducts briefing sessions twice a year on every six months
interval with its investors. Keen interest of the shareholder is learning about the
competition prevailing among Australian sector in retailing, capital allocation method as
well as separation of Coles. Detecting the material misstatement in this matter is vital as
the decision of an investor is solely depend on financial report and this could fetch them
low returns.
 Consumers and Employees:
The consumer of the company is supported through telephonic calls, emails, websites
customer support messages, letters as well as in person meeting. Feedback to the
customer is provided on working day as per their query responses are provided at beat
to resolve their problems. All the staffs get engaged in decision making. A survey is
being conducted among the employees for their betterment, even though emails and

5AUDIT AND ASSURANCE
whistle blow process is followed. The decision of consumers as well as employees is
dependent on fiscal reports so there should not be any material misstatement.
Independence and Whistleblowing
Independence of external auditor is featured by the honour and objective approach
towards the procedure of audit. The concepts indicates that auditor decision should be
based on its independency and shall achieve the objective for which an audit is being
conducted. The auditing profession is governed by the accounting ethics that emphasises on
the concept of whistleblowing and independency of auditor. Independency would be
reflected if auditor pinpoints the misstatement as soon as he identifies it. The commitment
of auditor towards it profession is for its independent opinion. (Wong & Millington,2014).
The independent opinion on the whistle blow policy by the auditor would reflect on
the direct as well as positive impact. The opinion of auditor shall reflect the intentions of
whistleblowing. Whistleblowing is defined as an agreement that gives the right to the
workers of the company to report unethical practises prevailing in the company if the
suspects or finds. Whistleblowing is a way out that helps in highlighting the unethical deed
being practised in any company may it be public or private. This led the company in
generating its loyalty including commitment towards loyalty.
The regulation APES 110 Code of Ethics for Professional Accountants issued by
“Accounting Professional and Ethical Standards Board (APESB)”. In accordance with Section
210.11.1 of APES 110, the present designated auditor shall seek the permission of the client
to communicate with preceding auditor. If the client’s response is negative the designation
of the auditor is wilted. In case the permission is grant all the required information shall be
taken on writing by the preceding auditor to conclude the decision for designation. This has

6AUDIT AND ASSURANCE
been introduced in order to protect the whistle blow policy related to reporting of
misconduct as well as informing the same to the government. This has protected the right of
speech as well as freedom of the worker along with contractors in a particular situation.
Right of filing a complaint resists in the hand of whistle-blower having evidences that
support breaches.
This has assisted in assuring the freedom of speech for the workers and contractors in
specific in accordance with “Section 100.1 of APES 110” the breach could be:
 Act, guideline or regulation
 Gross fund excess
 Gross mishandling
 Exploitation of authority
 Precise or considerable hazard to community security or well-being
Experience of Auditor from Enron scandal
Enron has been marked as globally biggest scandal among corporates. The
experiences learnt by the auditor are listed as well as elaborated bellow:
Unhooking the books:
The effective capital market is the reflection of correct representation of company`s
accounts. Andersen the auditor of Enron addressed in its statement that the downfall that
has occur is representing the whole profession. The auditor has been found to be guilty
about Enron and laying the blame on the evidence of documents that has been presented in
front of investigators. The reason behind the failure of audit is because of occupational
association that has been manipulated due to disputes along with obligating incentives. The
auditor is being appointed by the shareholder to present the true picture of the company

7AUDIT AND ASSURANCE
financial. But actually the higher level of management had selected auditor and had become
obliged. The secretarial entity are involved in recurrent vending of referring facilities to the
audit customers and from time to time, the exterior auditors are conscripted in top
administration places or interior auditors. Hence, it develops easiness for the entity to
perform on the anxiety of the discrete audit companion of trailing a lucrative audit project.
In dissimilarity to such a contextual, the review superiority is expected to grieve.
In this situation it is better to give the audit work to the government than providing
to the private accounting body. This would involve inherent risk in respect to the auditor,
also it is not sure that the government accounting body would also not be on the same line
as private accounting body. By means of transitional move, it is obligatory to safeguard that
the assortment of auditors make sure of not lie in the influences of the higher level of the
body. In its place, the government organization would employee the auditors constructed
on the grade on the condition by the organisation that would transmit on experiencing the
audit remuneration. (Wong & Millington, 2014).
However, it indicates that there is a need of strict regulations for the profession
regarding audit that constitutes of high disciplinary powers. There shall be banned imposed
on the organisations providing consultancy services and other facilities to the clients. The
auditors have successfully attain the way out from the regulation imposed on them through
dominancy. The idea of rotation of auditors in every four year of gap so that auditors does
not reflect their personal emotions at the time of their professional judgement.
The most practicable peer of the realm appraisal takes domicile when an organisation
creates in to opinion at the records of a precursor. The Australian Securities and
Investments Commission require to prohibition the repetition of the organisations

8AUDIT AND ASSURANCE
employing auditors as employee along with supervisors from external audit firm. (Ellis,
2018).
Better Standard
From the Enron scandal auditor shall take into consideration the problems that is
related to accounting standard. The way of the firm does it audit needs attention in some of
the areas including the treatment of balance sheet, accounting standards applicable in US as
they are neglected highly as they are too much narrow that results in missing of wider
aspects of principles. The reason of voluble awareness had suppressed the improvement of
accounting standard the attempt taken by FASB. (Ellis, 2018). This gives the indication
towards the requirement of regulating body to apply strict regulations that ensures
principles for sound process of work. This would be more applicable if the standards are
accepted globally.
The debacle of Enron pointed out the absent of efficient governance in high MN
corporations. In the upcoming periods each different kind of balances along with payments
have been developed in order to rely the supervisor of the firm. They play the role of
managers for the stakeholders, are performing the same in reality. The powers of doing so
rest in the hands of CEO for setting out the payment limit as per the stock holding capacity.
(Australian Broadcasting Corporation, 2019)
The need of the system is focusing on the interest of the stockholders. There is a
need of non-executive directors who can provide proper focus on the independent
remuneration as well as audit committee in a science manner. So that job of every person
can be well defined. So, there persist a need of better guidelines on which auditor and the

9AUDIT AND ASSURANCE
entity can run smooth and comprehensive business operations. (Knechel and Salterio,
2016).
Behaviour of Arthur Andersen
At the time of performing of audit performing of Enron Arthur Andersen was at the
second position of being the oldest firm. It responsibility was to ensure to provide true and
fair view about the financial statement along with the internal books of record. The public
showed their interest to invest in the company on relying upon the opinion stated by
Andersen that the reports were free of misstatement and represents the true view of the
firm. There prevailed conflict of interest as he was the business partner of Enron. Some
managers of Andersen were employed by Enron. Andersen did a mistake that he did not
approach to Enron about their partnership formerly verifying of fiscal reports of the latter.
As Andersen was found to be guilty for destructing the documents of Enron. This indicated
the unethical practise opted by the auditor for millions. ( Bing, Huang & Zhu, 2014).
Audit Quality and Steps
There was no definition that were given global recognition regarding the quality of
audit, external audit facilities. These are taken into account that provides high level of
professionalism regarding strict audit with accordance to accounting standards. The
observation that can be concluded from the audit procedure are those element that
includes information regarding the nature as well as degree of appreciated insights. Even
the capability to coordinate facilities that fits appropriately with the matter across the globe.
Australian Broadcasting Corporation. (2019)
As per to Greg Medcraft, there are probabilities so that Australia may take into
consideration for meeting incidents like Enron if not the big four MNC accounting firm

10AUDIT AND ASSURANCE
significantly develop their auditing standards. Even there was complain logged by the
individuals that their accounts are not properly inspected by the auditor. A warning bell of
financial danger.( Ellis, 2018).
As the case mentioned above if the issue is not bought under notices as soon as it
prevails the rate of cases like Enron would increase more. To omit these scandals auditor
need to be more potential to perform their duty so that no material misstatement shall be
there in the financial statement. The auditor shall provide assurance regarding the
statement that its true and view in its knowledge according to APES 110(2). It was noticed
by Medcraft, that the reason behind the Enron scandal was lack of efficient audit. This
indicates that auditor shall be more efficient while performing audit and shall not violate the
responsibility of an auditor.
In one of the news article it was published that ASIC had reviewd the Key Audit
Samples of one and half year till December 2016., framed by the big four audit firm. It
concluded on reviewing that twenty three percent did not provide actual assurance that the
fiscal statement that are been represented by the company are free from any material
misstatement. This signifies that the inefficacy of auditor in maintaining his professionalism
or shows lack of knowledge to tackle the situations that throws challenges on
professionalism of auditor. This can turn worse out in the coming time. (Fox, 2013).
The Enron 2002, scandal was due to fraud even the auditor Arthur Andersen was
involved in the fraud. As soon as the matter was raised by the ASIC related to valuations of
asset in the year 2016 Seven West Media and Nine Entertainment Company wrote the value
of assets.
Medcraft, commented that ASIC had carried surveillances up to seven thousand,
they conducted number of investigation and they banned hundreds of firms. More than

11AUDIT AND ASSURANCE
eighty individuals were put behind bars as they submitted unfinished returns to the
government. The charges imposed on them was termed as criminal charges. This
suggestion was identified by government as well as the fiscal enquiry body. Keeping the
point highlind ethical auditing practise is recommended. ( Bing, Huang & Zhu, 2014).
From the declaration of Medcraft, it is flawless that once the firm comprise merely
few persons owning the compulsory familiarity along with information to achieve the
responsibilities of the inspection partner, revolving them potency not promise satisfactory
precaution, as declared in in APES 110 as per prescribed section. In case, the autonomous
supervisor has specified an exclusion from companion gyration in the appropriate authority,
it converts conceivable for a separate to vacation as a key audit companion for overhead
seven long years. Though, there requirements to be the attendance of alternative
protections like self-governing exterior evaluation.
In APES 110 Section(100(1)), recommends the auditor to give his best to serve the
interest of public would be secured. The duty of an audit firm member is to attain the trust
regarding the interest of public for their assurance. Section 100(2c) defines safeguard as the
essential to be pragmatic so that the intimidations could be eliminated or they could be
minimised to a satisfactory gradation. In specific, safeguards are realistic when it is analysed
that the intimidations are overhead the anticipated equal when near is no cooperation
made with the foremost reviewing philosophies.
As a base on the statement of Medcraft, there is chance to avoid the crisis regarding
finance. This can be only done if the Australian auditors walk on the ethical path to
discharge their responsibility. He or she shall possess the skills and knowledge to overcome
such challenges. APES 110 directs the auditor to maintain cordial relationship between
profession and personal. They are not allowed to leak out the confidential matters regarding