Auditors' Public Interest Responsibility and Enron Scandal Analysis

This report provides a detailed analysis of auditing practices, focusing on the Enron scandal as a central case study. It examines the failures in auditing that led to Enron's bankruptcy, highlighting issues of misrepresentation in financial statements and the subsequent loss of shareholder value. The report explores the responsibilities of auditors, stakeholder analysis, and the importance of independence and whistleblowing in maintaining public trust. It also reviews lessons learned from the scandal, including the need for improved auditing standards, ethical considerations, and the role of regulatory bodies such as the APESB. The report uses the Bank of Queensland as a case study to apply these concepts, discussing the implications of auditing failures on various stakeholders, including customers, employees, shareholders, and financial institutions. The report emphasizes the importance of robust auditing practices to prevent future scandals and protect the public interest.

AUDITORS PUBLIC INTEREST RESPONSIBILITY

Executive Summary
In this report, the learning and analysis of auditing practices and loopholes in auditing have been
highlighted with a centralized case evolution of Enron Bankrupts. In the year of 2001, the United
States leading energy producing company has gone bankrupt, after that it has been reported that
auditing practices have been carried out by the firm Author Anderson has been made misevaluation
and avoided misstatements presented by Enron in the financial statement of the firm. The case has
raised issues regarding the auditing issues and problems throughout the globe. The company might
not be able to meet the employees' requirement and demands due to lack of such amount of money
in the company. This results to either increase of doubtful case over the financial statement or
reason for employees switching to other jobs in the market. In the report, it has been evaluated that
the share prices downfall of Enron has also might be ,made negative impact on the stock market,
thus the fake valuation in the way can provide benefit with the organisation as it might able to form
an enhanced image in the marketplace. Thus, there are different strategies and steps are highlighted
and evaluated in the report, which ensures the auditing roles and responsibilities required to be
reviewed, revisited and reanalysed to avoid such kind of human errors and build another case like
Enron. In the following to scandal, while it has raised questions about accounting practices, the
report has highlighted that the accounting professional and ethical standard board (APESB) has
engaged 110 code of ethics for engagement of principles to be followed by Accountants under
section 100. This has lead to a set of different policies to redefine roles and responsibilities of
auditing individuals. The report has also highlighted that engagement of central power and approval
system can reduce any form of human error., which is an advisory in returns to the warning that has
been issued after the scandal of Enron. In addition to it, the auditing practices that has been
attempted by an auditing individual can produce evidence for approval from its superiors.

Table of Contents
Introduction...........................................................................................................................................4
1.0 Key Stakeholder analysis of Bank of Queensland............................................................................4
2.0 Conception of independence and Whistle lowing in the context of auditors and how it relates to
public interest requirement...................................................................................................................5
3.0 Lessons to the auditor from Enron Scandal.....................................................................................6
4.0 Research on audit quality and requirement to address “warning”..................................................8
Conclusion...........................................................................................................................................10
References...........................................................................................................................................11

Introduction
The Enron was an energy commodity and Service Company, which was formed in the year 1985, the
company, has employed about 30000 employees as of the year of 2000. The company has reported
that it has earned and profit or revenue value of US $101 billion in the year of 2000. From the
revised and brief analysis of the financial statement of the company, it has been revealed that the
company has been manipulating its revenue figures from past many years in relation to create a fake
profitable image in the marketplace. The Enron became one of their centre point scandal that has
bought out the loopholes and auditing and practices. There are different oldies and legislation have
been introduced by the government of almost every nations in relation to the practice of auditing
practices. The particular report is based on critical analysis of auditing, its significance, and
loopholes, which have been observed in the context of ASX, listed Australian banking company Bank
of Queensland. In the report, with the context of BOQ ( Bank of Queensland), it has enhanced
learning over the changes made in auditing practices and lessons least by auditing individuals from
the Enron scandal that has been hit in the year of 2001.
1.0 Key Stakeholder analysis of Bank of Queensland
It has been evaluated that almost 23% of the cases, which has been seen that the auditing
individuals do not provide proper analysis and dictation of the financial values presented by them.
The Bank of Queensland includes several stakeholders in the market, within which the customers,
employees, managers and financial institutions of the firm. It has been evaluated that misstatement
of financial values are not identified, analysed, disclosed and adjusted; it significantly provides false
and fake information of the company that later on lead to issues of the business entity and its
customers (Alleyne, Hudaib & Haniffa, 2018). In respective of consumers, the fake values increase
customer loyalty and brand image, thus might increase the risk of low-quality products to be
purchased by consumers’ with highball higher costs in the market. The shareholders are another
stakeholder of Bank of Queensland; the individuals invest in the shares might not get the return on
investment as expected as the valuation of revenues are manipulated, which means the company
might not have such income to provide share prices as income values are manipulated as fake values
in front of the public. In addition to it, the share prices might be increased in the stock market. Thus
the fake valuation in the way can provide benefit with the organisation as it might able to form an
enhanced image in the marketplace (Simon, Smith & Zimbelman, 2018). However, the financial
institutions, which are other stakeholders of the business makes critical analysis and evaluation of
the financial statement of the firm. The manipulated values might be in the doubtful case of the

financial entities to provide loans and advances. However, their impact of manipulation of financial
values can help the company to earn estimated loans and advances from the banks, although the
Bank of Queensland will face hurdles in payment of its interests and instalments ( Narkchai, Fadzil &
Thungwha, 2018). The increased loan amount increases its interest and instalment amounts, which
is based on fake valuations, thus the company might get insolvent if non-payment of loan amount
paid to the financial institutions. As per assessment, employees are another important stakeholder
of the business, manipulation of accounts and values reduces the impact of cash values, and storage
for bonus points, and salary scales for employees. It has evaluated that of the organisation
manipulates its values of revenue and sales in the financial statements; employees might demand
hike in pay scales and increase in bonus points from the organisation (El Guindy & Basuony, 2018).
2.0 Conception of independence and Whistle lowing in the context of auditors and how it relates
to public interest requirement
According to the public interest requirements, In relation to auditing, the independence term is
defined as the right of the auditor to make decisions with their own judgement, learning and
analysis about the valuation of financial figures presented by the firm in the market. As per the
assessment, the independence of internal and external auditor have been presented with concern to
the third parties who might have financial interests towards their financial statements been audited
(Latan, Ringle & Jabbour, 2018). This means the independence is required for the auditors so that
any individual from the firm cannot take advantage of manipulation of the different auditing
process. The independent term is engaged in introducing indignity and objectivity in the auditing
procedure. It has evaluated that engagement of independence has been assessed so that auditors
can do their job freely and make decisions by their own choices and understanding without any form
of disturbances, involvements, biases, and obligations for third parties related to the organisation
(Clikeman, 2018). As per the assessment, the internal and external auditors might harm the results
of specific parties, which might face some sort of losses if there are any misstatements or
miscalculations are made by the management for an accountant for their self-interests. The
independence has been provided to the afters so that no business firms can involve into any illegal
activities such as misstatement of accounts, making fraud with the shareholders, cheating with the
financial intuitions or faking the financial statement in front of the public for the course of increasing
the company image (Apesb.org.au 2019).
The APES 110-Code of ethics of accountants states that Whistleblowing is observed as an act of
disclosing confidential information, business secrets or any form of data and information which
harms one's image by an employee or individual related to the origination to the public or

government. The whistle-blowing is usually related to the individuals discloses company secrets in
front of public or government, which turn point to be bad or negative action against the
organisational image. As per the evaluation, the Whistleblowing is also termed as public discloser of
the information about companies in the market (Palmrose & Kinney Jr, 2018). It has been evaluated
that the development of public disclosure by the internal auditor is part of their interests, although
the disclosure of auditor and other employees are merely different. An internet auditor explores
organisational financial information in front of the public to state the organisation has fair values or
not. Thus interests are favour of organisation. However, employee discloses confidential internal
information for the company for their personal interest and advantages that harms organisational
image (Roy & Saha, 2018).
3.0 Lessons to the auditor from Enron Scandal
After a decade has been assessed to one of the greeted auditing and accounting related scandal of
Enron, the incident has been still notified by the investment a, accountant and auditing community
throughout the world. The Enron scandal has been bankrupted in the year of 2001, due to their
misinterpretation of financial statements, which has also destroyed about $60 billion value of
shareholders in the marketplace. In the United States, before reporting of auditing frauds made by
Enron (Apesb.org.au 2019). It has been ranked as the seventh largest company in the country. $63.4
billion of assets that have been dissolved by Enron is stated to be highest assets devaluation due to
bankruptcy is termed as the highest value until date. As per the analysis PF Enron case, the dissolve
of the company has largely affected the stock market exchange of United States, the pulling down of
stock value of Enron from $90.72 to $1 has been reported after the fall of the company in 2001 (Lee,
2019). The scaled has been draw attention over the loopholes of different auditing and accounting
firms in the USA. It has made direct hit towered the closure of Accounting firm Author Anderson,
which has audited the Enron’s financial statements and accounting values. The unauthorised and
inappropriate practices of auditing have also emerged creation of Sarbanes Olexy Act 2002. In the
following to scandal while it has raised questions about accounting practices, the accounting
professional and ethics standard board (APESB) has engaged 110 code of ethics for engagement of
principles to be followed by Accountants under section 100 (Apesb.org.au 2019). It has been
evacuated that development of excessive forecasting for growth and performance and complex
business model of Enron has been the resulting of its downfall and the accounting practices and
loopholes in auditing have added more adverse results to the company, which finally reported
bankruptcy. The discussion introduced such changes that have been made in the counting practices

after the highlight of the Enron Scandal, although there are several lessons that have been learned
from the scandal which are evaluated as follows:
The scaled has bought information to the large nu number of shareholders, stock exchange
executives, and investment agents over the understanding of high-risk factors to invest in firms
accounting performance which is not understandable (Palmrose & Kinney Jr, 2018). It has been
evaluated that different shareholders and investment agents in the market have trouble to
understand the business model, as the company has made highly great and development in a few
years. As per the assessment, it has observed that the financial statement that has been presented
by Enron at the time of its high performing positions, it has evaluated that the statement of fantail
values was not been accurate or correlating with the activities that have been shown in the
marketplace (Johed & Catasús, 2018). The observation of different accountants after the fall of
Enron to its financial statement has stated that there has been a lack of logical reasoning of the
values and financial numbers that have been presented by Enron. Thus, it has been the highest
lesson for auditing and accounting firm to evaluate abscise of any reasoning for accounting and
financial values, are observed as doubtful for the firm.
The business entities engaged in high end and excessive advantage that evaluates compare to
current market a business entity has been providing high-end result in the market ( El Guindy &
Basuony, 2018). This questionable factor has not been followed in case of Enron’s high-end leverage
and increased performances. It has evaluated that the high end and excessive advantage magnifies
poor financial positioning and performance of business entities in the market. This might be the
reason behind the manipulation of financial values in front of the market by Enron, which resulted,
to its bankruptcy. Thus, investors and shareholders require following upon leverage systems of
business entities based on the current market growth pace and economic condition of the country as
well. As per the evaluation the high-end leverage strategies has been; always observed a risky
strategy for the business firms in the market (Roy & Saha, 2018). The scaled has bought this into the
light, as most of the companies have started to revise their leverage strategies, which might result in
bad news for the entities in the near future.
The Enron issue and case has also highlighted another lesson over the market, which was avoiding
investment and shareholder engagement for the business entities, which employs and engages fancy
derivatives in their stock of shares. It has been evaluated that Enron has been depended over the
derivatives to generate funds for business, the company has been following mark to market
accounting schemes, which has evaluated profit earning from the derivatives after they are matured
(Apesb.org.au 2019). It has evaluated that the maturity time of derivative realising profit figures, has

enough claw back potential to affect the profit margin and profit earning of the firm. Thus, business
entities depend over high-end derivatives are also at risk of the market, which can engage fewer
profit margins in the future years.
The lesson that has been emerged by the Enron case has understood the significance of managerial
skills of executives and providing importance to their knowledge and learning. Irrupt has observed
that an excellent executive or managerial director with good knowledge never capitals, stocks,
business investments can turn down the market downfall and other worse condition of the market
not to affect the business performance through their strategies (Alleyne, Hudaib & Haniffa, 2018).
But, in the case of Enron, the management executives have been poor skills and learning which has
to lead to the loss of millions shareholders values.
4.0 Research on audit quality and the requirement to address "warning."
Acceding to the APES 110 Code of Ethics for professional accountants and documentation has stated
that there is a requirement of developing the auditing quality inducted by different accountants and
authors for a specific firm. As per the section 110 of APES, it has assessed that proper review
documentation to be presented, in which assured roles and responsibilities of auditors are
presented for providing reliable and appropriate service of a financial audit of firms (Clikeman,
2018). The scandal of Enron has led to a warning by ASIC chairperson Grag Medcraft that Enron case
should not be reputed again in future related to the practices and processing of auditing firm. In the
warning, it has evaluated that all auditing practices roles and responsibilities by an auditor required
to be re-evaluated so that auditing services are attempted and assessed reliably and no such
material miss-assessment has been attempted by accountant and auditors for a firm, financial
statement presentation (Apesb.org.au 2019).
In response to the warning that has even stated by Grag Medcraft, explains that there is a
requirement of increasing quality and assurance of auditing practice by the business entities and its
accountants. The response to the warning announced, the auditing firm requires to reanalyse the
principles and policies as well as the procedure of auditing that has been done of different auditing
individuals in the organisation. It has observed that there might be a requirement of central power
to ensure the auditing practices that have been emerged by an individual in the specific organisation
is done reliable and significant manner (Simon, Smith & Zimbelman, 2018). This strategic step can be
developed by the auditing firm, which include an executive of auditing to approach the auditing
process and activities made by an individual respected and practised auditing services to that form.
The engagement of central power and approval system can reduce any form of human error and

practices that has been attempted by an auditing individual to misstatement or overlook any
incorrect valuations of the financial statement of a firm. It has evaluated that assurance of financial
statement and analyses and practice need to be engaged minutely by the business entities
performing auditing and accounting services (El Guindy & Basuony, 2018).
As per the analysis, it has been observed that Auditing and accounting firms require to select their
lines and customers in a very careful and reliable manner. It has observed that a certain process
regulation or doc negation require to be adopted that provide proper details of the client firms,
which can include typical financial, operational, market related, financial, stock market information
that is required to be addressed. The responses from the client at the first place provide overall
information on the form of answers, logical statements, and practical responses of the firm. If there
is something which is not related to the financial statement of the firm or the client are unable to
provide an accurate answer for a particular or specific financial transaction, it can be observed that
the busies entity might have been engaged in some form of misstatement of its financial values
(Clikeman, 2018).
In response to the warning that has been allotted for increasing watch over roles and responsibilities
of accountant and auditors in the marketplace to avoid such case of Enron further, the accounting
an auditing business entities require to select and recruited its individuals based on their reliable
skills, learning, commitment and qualifications. The proper workforce with integrity and proper
sense of focus and commitment avoid the formation of human errors in the financial statements. It
is also necessary to manage and evaluate the work pressure over auditing individuals. Thus
management of auditing firm also require looking after proper and reliable time has been providing
to any auditing individuals for finishing their job of analysing financial statements of their customers
(Narkchai, Fadzil & Thungwha, 2018). The allocation of proper timing and scheduling helps an audit
individual to look after each financial record and analyse them minutely so that any financial values
cannot be missed to miscalculate for the individual.
The business culture, norms, policies, and procedures of entities always make an impact on the
behavioural approach, attitude and conversation procedure of employees in the organisation. In the
course of increasing assurance and reliability of auditing services, there can be an introduction of
policies over consultation and advisory over the auditing practices been attempted by the firm
(Latan, Ringle & Jabbour, 2018). It has been evaluated that the development of consultation and
advisory culture from the expert and experienced auditing individual while in need, the individual is
able to engage their job and roles and auditing and analysis of the financial statement of their
client's more reassured and relevant manner. The advisory and expert opinion system can be

engaged to ensure the actions, decision making, activities and job roles are perfumed by the audited
individual in a specific organisation are certainly current or incorrect in the market (Apesb.org.au
2019).
As per the analysis, the development of quality assurance and auditing performance by an individual
for an organisation need to be accurate and truthful. It has been evaluated that development and
engagement auditing practices require evidence and proofs that is to be gathered by the auditor for
giving the properly approved report to their superiors and business owners. In regards to the
response towards the warning made after Enron’s scandal, the improvement of auditing quality and
roles of an individual can be achievable, while the auditor performing financial evaluation requires
providing an evidential report in front of their superiors (Apesb.org.au 2019).
Conclusion
In the particular assignment, it has observed that auditing and accounting services are mistaken or
misused by different individuals weather auditors or the third party individuals or organisation
whose financial statements are audited. The great Enron scandal has increased briefing over
loopholes and issues over the auditing and accounting practices of the firm. It has increased learn on
different steps, strategies, policies and different approaches of accounting and auditing need to be
revised so that the loopholes could be covered and no such case like Enron could have happened in
the near future. The assignment has highlighted development evidence gathering declines any
manipulation of financial statements by the auditor or any third party individual for their personal
interests.

References
Apesb.org.au (2019) Accounting Professional and Ethical Standards Board. (2019). Retrieved from
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