fact‚ is crucial to the credibility of financial reporting and‚ in turn‚ the capital formation process.” (Schuetze 1994) As indicated by the second Generally Accepted Auditing Standard (GAAS)‚ ethical behavior and independence on the part of the auditor are vital to the audit function. The demand for auditing arose from the need for a competent‚ independent person to monitor the contractual arrangement between principal and agent. If an auditor is incompetent or lacks independence‚ the
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4.1 Enron Corporation and Anderson‚ LLP ----Analyzing the fall of two Giants This case results in the publishing of Sarbanes-Oxley Act of 2002 and relevant to the Securities and Exchange Commission. Also‚ it is related to SAS 103: Auditing‚ Quality Control‚ and Independence Standards and Rules. [1] What were the business risk Enron faced‚ and how did those risks increase the likelihood if material misstatements in Enron’s financial statements? The business risks Enron faced are as following:
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strategies for Enron rather than created hundreds of SPEs to remove assets and debts off balance sheet‚ the picture of Enron could have made a difference. Secondly‚ if the audit committee of Enron could point out all those aggressive and risky accounting treatment and propose solutions‚ then the afterward damages could be eliminate or at least minimized. c. The BOD of Enron should have known about the risks and apparent lack of independence with those SPEs. They should have listen to some of the accountants
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collaboration with major banks‚ SPEs borrowed money‚ often with direct or indirect guarantees from Enron. The cash was used to benefit Enron‚ but was not necessarily transferred to Enron. Enron did not report debt on its financial reports. It did not disclose the contingent liability for the debt as required by GAAP. Various methods described next were used to transfer the cash and further manipulate financial reports. Enron had investments in companies (which were not SPEs) that it consolidated or reported
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Additional Cases for the Course The case readings have been developed solely as a basis for class discussion. The case readings are not intended to serve as a source of primary data or as an illustration of effective or ineffective auditing. Reprinted by permission from Jay C. Thibodeau and Deborah Freier. Copyright © Jay C. Thibodeau and Deborah Freier; all rights reserved. 1••• ( Case 61 ® Enron Enrori’s First Few Years hi~ 1985 Enron had assets along the three major stages of the supply
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later‚ which might be a red flag for the external agencies. 1.3. Financing: Related parties to the entity 1.3.1. SPE: Special Purpose Entities‚ which are the source of funding as well as non-financing activities of Enron‚ are organized as partnerships. Enron utilize the SPE under the 3% rule5 to give rooms to transfer loss to SPE and spin off part of the corporate debt to those SPEs‚ which had to use Enron’s stocks as collaterals to the creditors of the company‚ thus possessing huge
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The following month the company restated earnings for the previous five years and erased $600 million in profits.2 It turned out that the October report began to reveal Enron’s gross abuse of special-purpose entities (SPEs) and the mark-to-market accounting method. The company used SPEs to keep enormous amounts of losses off its books while inflating earnings from supply contracts by booking all profits from a contract in the quarter the deal was made.3 What also became clear was that Enron did not
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Special Education Resources (Annotated Bibliography) Grand Canyon University SPE-529N: Special Education Foundation and Frameworks September 26‚ 2012 Special Education Resources National center for learning disabilities. (2012). Retrieved from http://www.ncld.org/ The National Center for Learning Disabilities (NCLD) is an organization that is committed to making sure that all students that are classified with a learning disability will have an opportunity to graduate from high school
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former partner as the “most aggressive pursuer of revenue” that she had ever met. AA failed to recognize how angry the public became at the lack of quality audit work that resulted from this revenue-driven focus and continued to use poor judgment when auditing Enron. Thirdly‚ AA allowed the partner in charge of the audit of Enron to override a quality control partner’s ruling. The quality control partner objected to creating one of Enron’s Special Purpose Entities because it had “no substance”‚ but the
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Q2: Accounting issues In 2001‚ Harris Scarfe’s suppliers and customers‚ and even a large number of the company’s staff‚ were shocked when the thriving business was suddenly faced with cash-flow problems. The company made headlines in South Australia when concerned suppliers‚ from whom Harris Scarfe had purchased large amounts of stock on credit‚ entered the flagship store in Rundle Mall‚ and began retrieving their stock directly from the shelves‚ before shocked staff and customers. The company
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