The Role of Audit in the Collapse of Enron and Lehman Brother
Hamza Ahmad
Hamza Ahmad
Hamza Ahmad STUDENT ID: W12302464
Hamza Ahmad STUDENT ID: W12302464
Advanced Audit
Course work
Advanced Audit
Course work
Contents EXECUTIVE SUMMARY 1 INTRODUCTION 3 CHANGES IN REGULATIONS 3 CHALLENGES AND RESPONSIBILITIES 4 RESPONDING TO THE CHANGES 4 Research Studies 4 Response to Surbanes-Oxley Act 5 Response to the European Commission’s proposals 6 Enron Failure 6 Arthur Andersen failure 6 Lehman Brothers failure 6 Ernst & Young failure 7 Detection of fraud 7 Going Concern 7 MINIMISING LITIGATION RISK 7 Obstruction of Justice 8 Consultancy service 8 Conservative Audit 8 Conclusion 8 References 9
EXECUTIVE SUMMARY
In the UK, European Union and the United States the Global Financial Crises has sparked a series of high level inquiries into the role and effectiveness of Audit. It is noted that several large organisations including Lehman Brothers and Enron have filed for bankruptcy, shortly after being audited. Accounting firms providing the service have received large sums of money in audit and non-audit fees. These events have raised questions regarding the effectiveness and credibility of an Audit.
The collapse Enron in November 2001, followed by the demise of Anderson was evidence of systematic risk in the US. The Ensuring crisis of confidence in financial reporting and auditing spread to other countries. The Accountancy Foundation Review Board which was at the time responsible for the independent oversight of the UK accountancy professional bodies took the leading role in the auditor independence review in the UK.
In the US the Sarbanes-Oxley Act for passed in 2002 to restore confident in the US financial market and further regulations were passed around the world including the European commission review (Green Paper).
INTRODUCTION
This report begins by looking at the recent changes in audit regulations after the recent financial crises, the challenges faced by
Hamza Ahmad
Hamza Ahmad STUDENT ID: W12302464
Hamza Ahmad STUDENT ID: W12302464
Advanced Audit
Course work
Advanced Audit
Course work
Contents EXECUTIVE SUMMARY 1 INTRODUCTION 3 CHANGES IN REGULATIONS 3 CHALLENGES AND RESPONSIBILITIES 4 RESPONDING TO THE CHANGES 4 Research Studies 4 Response to Surbanes-Oxley Act 5 Response to the European Commission’s proposals 6 Enron Failure 6 Arthur Andersen failure 6 Lehman Brothers failure 6 Ernst & Young failure 7 Detection of fraud 7 Going Concern 7 MINIMISING LITIGATION RISK 7 Obstruction of Justice 8 Consultancy service 8 Conservative Audit 8 Conclusion 8 References 9
EXECUTIVE SUMMARY
In the UK, European Union and the United States the Global Financial Crises has sparked a series of high level inquiries into the role and effectiveness of Audit. It is noted that several large organisations including Lehman Brothers and Enron have filed for bankruptcy, shortly after being audited. Accounting firms providing the service have received large sums of money in audit and non-audit fees. These events have raised questions regarding the effectiveness and credibility of an Audit.
The collapse Enron in November 2001, followed by the demise of Anderson was evidence of systematic risk in the US. The Ensuring crisis of confidence in financial reporting and auditing spread to other countries. The Accountancy Foundation Review Board which was at the time responsible for the independent oversight of the UK accountancy professional bodies took the leading role in the auditor independence review in the UK.
In the US the Sarbanes-Oxley Act for passed in 2002 to restore confident in the US financial market and further regulations were passed around the world including the European commission review (Green Paper).
INTRODUCTION
This report begins by looking at the recent changes in audit regulations after the recent financial crises, the challenges faced by
References: ICAEW. (2009). The impact of changes to the NON-Audit Service regime. Centre for business performace. 1 (1), 1-20. Alan Zibel, “ 'Liar loans ' threaten to prolong mortgage crisis” (2008) “Statement of Financial Accounting Standards No http://www.fasb.org/summary Erin Nothwehr, “Emergency Economic Stabilization Act of 2008” (2008) Ross Watts and Jerold Zimmerman, “Agency Problems, Auditing, and the Theory of the Firm: Some Evidence” (1983) pp. 618. Edward Boyd, History of Auditing, in History of Accounting and Accountants pp78-88 (Richard Brown ed. 1905) Ross Watts and Jerold Zimmerman, “Agency Problems, Auditing, and the Theory of the Firm: Some Evidence” (1983) pp Ross Watts and Jerold Zimmerman, “Agency Problems, Auditing, and the Theory of the Firm: Some Evidence” (1983) pp. 630 Committee on Basic Auditing concepts, A Statement of Basic Auditing concepts “The Market for Lemons: How Information Contributes to Efficiency.” January 05, 2010. Shakun, Melvin F., “Cost-Benefit Analysis of Auditing. Research Study No. 3, Commission on Auditors’ Responsibilities.” New York: American institute of Certified Public Accountants, Inc., 1978