The Responsibility of the External Auditor and the Management of the Entity Being Audited with Relation Fraud and Error.
Assignment number :01
Course code: HONOUDK
Student number: 36894206
The responsibility of the external auditor and the management of the entity being audited with relation fraud and error.
1.Introduction
Fraud is defined as something that is intended to deceive people and error is defined as something unintentionally done wrong, e.g. as a result of poor judgment or lack of care by Encarta English Dictionary. After the collapse of great companies like Enron, and World com to mention a few, it has raised eyebrows the involvement of auditors in these failed companies and have put the importance of effective corporate governance in the spotlight. It was well documented fact that Arthur Anderson the auditors were involved in the Enron debacle which led to its dissolution as one five largest accounting firms in the world. The responsibility of auditors in the above mentioned example was massively undermined, on June 15.2002 Arthur Andersen was convicted of obstruction of justice for shredding documents relating to its audit of Enron. Even though the Supreme Court of the United States unanimously overturned Andersen’s conviction due to flaws in the jury instructions, Andersen has not returned as a viable business even on a limited scale, there are over 100 civil suits pending against the firm related to its audits of Enron and other companies. It began winding down its American operations after the indictment. The management of Enron also was not responsible and careful enough in handling their operations as a result of the fraud at Enron shareholders lost tens of thousands of billions of dollars and many Enron executives were indicted. Therefore this is a very serious issue that both management and auditors must not overlook but show great willingness in tackling it.
I believe that normally management takes great care in preparing financial statements and in making sure that the financial statements are free of material error in all respects. Despite what I have
Course code: HONOUDK
Student number: 36894206
The responsibility of the external auditor and the management of the entity being audited with relation fraud and error.
1.Introduction
Fraud is defined as something that is intended to deceive people and error is defined as something unintentionally done wrong, e.g. as a result of poor judgment or lack of care by Encarta English Dictionary. After the collapse of great companies like Enron, and World com to mention a few, it has raised eyebrows the involvement of auditors in these failed companies and have put the importance of effective corporate governance in the spotlight. It was well documented fact that Arthur Anderson the auditors were involved in the Enron debacle which led to its dissolution as one five largest accounting firms in the world. The responsibility of auditors in the above mentioned example was massively undermined, on June 15.2002 Arthur Andersen was convicted of obstruction of justice for shredding documents relating to its audit of Enron. Even though the Supreme Court of the United States unanimously overturned Andersen’s conviction due to flaws in the jury instructions, Andersen has not returned as a viable business even on a limited scale, there are over 100 civil suits pending against the firm related to its audits of Enron and other companies. It began winding down its American operations after the indictment. The management of Enron also was not responsible and careful enough in handling their operations as a result of the fraud at Enron shareholders lost tens of thousands of billions of dollars and many Enron executives were indicted. Therefore this is a very serious issue that both management and auditors must not overlook but show great willingness in tackling it.
I believe that normally management takes great care in preparing financial statements and in making sure that the financial statements are free of material error in all respects. Despite what I have
Bibliography: 1. Arens, AA., Elder, RJ., Beasly, MS., & Splettstoesser-Hogeterp, IB. 2007. Auditing and other Assurance Services.10th Edition. Toronto. Pearson.Prentice Hall. 2. Encarta Dictionary. Internet. 28 April 2009 3. Enron Scandal. Wikipedia, the free encyclopedia. www.wikipedia.org./wiki/Enron _Scandal. 28 April 2009 4. The South African Institute of Chartered Accountants ISA 240 .2008.The Auditor’s Responsibility to Consider Fraud in an Audit. Johannesburg. Lexus Nexis pg 4-23 5. Woelfel, CJ & Woelfel, WJ.1987. Fraud: The Inside Criminal.CPA Journal. March 1987.pg 41