Auditors Role in Enron - 2533 Words

MANAGERIAL ACCOUNTING ASSIGNMENT NO1 STUDENT:0705080/1 QUESTION 1 (B) Evaluate the auditors role in the certification of the financial statements and conclude whether its work is effective in preventing major scandals on the lines of Enron and Worldcom. 1.0 ABSTRACT 2.0 ENRON-CORPORATE FIASCOS 3.0 HOW DID THE AUDITORS FAIL TO CATCH PROBLEMS AT ENRON? 4.0 HOW TO PREVENT RECURRENCE OF ENRON? 5.0 NEW RESPONSIBILITIES OF AUDITORS ACCORDING TO SARBANES-OXLEY ACT 2002 6.0 CONCLUSION 7.0 REFERENCES 1.0 ABSTRACT The responsibility of an auditor is to express an opinion on the financial statements based on his audit which means verification or check in accordance with International Standards on Auditing. These standards require†¦show more content†¦First, auditors may either fail to detect a material error or misstatement, or, having detected an error, fail to recognize it, because they have carried out a substandard audit – i.e. the auditors are incompetent. Second, auditors may identify an error or misstatement and fail to report it or get the directors to put it right – i.e. the auditors lack independence. Third, directors may deliberately deceive auditors. In cases of deliberate deception, auditors may not be held responsible for failure to detect a problem. Andersen’s audit failed due to unconscious bias which is the propensity to interpret data in accordance with our desires. Biased judgments, rather than criminal collusion between auditors and management often cause audit failures. The so called â€Å"integrated audit† that Andersen employed at Enron where it sought to combine its role as external auditor with internal auditing, the process whereby an enterprise checks its own books. Internal audits seek to ensure that an enterprise follows its procedures, safeguards its assets, and operates efficiently. Management has historically selected the accounting principles that an enterprise uses to prepare its financial statements. An audit essentially endorses or rejects the accounting choices that management has made. The auditors have a large part of responsibility while endorsing or rejecting the accounting principles. 4.0 HOW TO PREVENT RECURRENCE OF ENRON? Implementation ofShow MoreRelatedThe Enron Scandal Of Enron1052 Words   |  5 PagesPublic accounting firms have long played a role in convincing the public the authenticity of the corporates’ financial statements. However, the public started to become skeptical about accountants’ reliability when the Enron scandal occurred. In October 2001, SEC started an investigation against Enron for improper accounting practice. According Sherron S. 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