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Finance - Audit and Assurance - Essay Example

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Finance - Audit and Assurance

Thus, this difference in the interest of the auditors and the clients makes it tough for the auditors to remain ethical while dealing with the clients (Rennie & et. al., 2006). Accountancy and auditing have been referred as complicated as well as practical procedures. In comparison to these characteristics, ethics could be considered to be far less complicated. Ethics can be described to be the honest, loyal, truthful and reliable way of performing an action. It is considered to be significantly important for auditors to perform their actions and their ways of working in an ethical manner. Ethics is required to be paid attention in case of auditing for the reason of reducing risk with regard to grave illegal actions (Campbell & Houghton, 2005). Auditing is concerned with dealing with financial statements and accounts of an organisation. Therefore, this process needs adequate compliance with ethical manners or specification. This is important as this would help to keep away the auditor from getting involved into any kind of legal liabilities or earn a bad reputation (Campbell, 2004). Unethical dealing by an auditing firm named Arthur Andersen gave rise to the scandal of Enron who was one of the firm’s client. The revelation of the corruption and the deliberate fraud proved fatal for both the company, Enron as well as for Arthur Andersen. The company was compelled to declare itself to be a bankrupt and the subsistence of the ace auditing firm came to an end with the exposure of this scandal (Cunningham & Harris, 2006). Difference of Interest in the Auditing Profession It has been already mentioned earlier that corruption is considered to be a result of difference of interest between the clients and the auditors. However, it requires to be mentioned in this context that there could be various kinds of differences of interest in the profession of auditing. A proper analysis of the Enron case would assist in providing a lucid understanding of this fact. The business model of Enron was stated to be quite complicated as it involved a broad range of products from trading functions, physical assets as well as going beyond the national borders. All these factors extended the boundaries of accounting. Enron took the opportunity of exploiting these accounting boundaries to the maximum in controlling its revenues along with its balance sheet so as to depict a favourable performance scenario. However, in this case two matters emerged out to be extremely problematic for the company. The company’s transactions related to trading engaged complicated contracts which involved extended time period. The form of accounting followed by the company compelled the management of the company to predict its future prices related to the energy operations along with the rates of interest. It was also found that the company depended broadly on the financial dealings that were considered to be quite controlled and engaged in developing or creating ‘special purpose entities’. These particular dealings involved sharing the possession of particular flows of cash as well as risks with lenders as well as investors from outside. The ...Show more

Summary

Audit and Assurance Table of Contents Table of Contents 2 Introduction 3 Difference of Interest in the Auditing Profession 4 Analyzing the Relationship of the Auditor to Enron 5 The Reasons behind the Auditor’s Act 7 Identifying the Causes for Impairment of the Auditor Independence 8 The Regulatory System 14 The UK and the US Regulatory Responses on Auditor Independence Issue in Post-Enron 15 Conclusion & Suggestions 16 References 18 Bibliography 21 Introduction Disagreement of interest is a common element that is present in the relationship between an auditor and his/her client…
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