BFA713 Audit & Assurance: Reflective Learning Journal on Enron Scandal

This reflective journal analyzes the Enron scandal, focusing on the auditing issues and the role of Arthur Andersen. It examines the misstatements in Enron's financial statements and the violations of GAAP and IAASB principles. The analysis incorporates findings from Ruhnke and Schmidt's research, highlighting the responsibilities of both Enron and its auditor in the financial misreporting. The journal also discusses the audit risk model, particularly the overlooked control risk factor, and concludes that the scandal resulted from a lack of transparency and ethical conduct by both the management and auditors.

Running head: ANALYSIS OF THE ENRON SCANDAL
Analysis of the Enron Scandal
Name of the Student
Name of the University
Author’s note

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
up high quality and international standard to protect the interest of the public. The
international auditing and assurance standard board increases the quality and consistency in
the entire world to strengthen public confidence in the international auditing
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

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. STATE LEVEL MECHANISMS FOR LEARNING FROM
WHISTLEBLOWING CASES AT INSTITUTIONS OF HIGHER EDUCATION IN THE
UNITED STATES. Problems of Management in the 21st Century, 11(1), pp.43-56.