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 amp; 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†¦show more content†¦(ICAEW 2009). CGAA further concluded that there was little clear evidence that joint provision of audit and NAS had in fact compromised auditor independence. Nevertheless, CGAA recommended ‘tougher and clearer safeguards to ensure that join provision of audit and non-audit services does not undermine auditor independence in fact or appearance’. This was to be achieved by independent setting of auditors’ ethical standards and an enhanced role for audit committees in overseeing auditor independence and NAS provision. (ICAEW 2009). In Europe and other parts of the world, auditing came under severe scrutiny which led to the European commission issuing a Recommendation on auditor independence in 2002 which included restrictions on auditors providing several non-audit services (European Commission, 2002). In addition to this an organisation was created for regular inspection of public interest audit in 2004 by the newly established Professional Oversight Board for Accountancy (FRC, 2009). Other regulations introduced included the EU Green Paper which aims to ensure that investors can rely on the accuracy of the audited accounts and to enhance the EU’s protection against the type of scandals that occurred in companies such and Parmalat and Ahold (i.e. cases of fraud not discovered by the auditors). To make matter even more complicated in 2004 the Auditing Practices Board (APB, 2004) issued Ethical Standard 5Show MoreRelatedThe Roles Of Auditing And Assurance Services1397 Words   |  6 PagesIntroduction The role accounting firms played in the last financial crisis raised questions about the legitimacy of auditing and assurance services. Auditors, who are considered independent and are supposed to provide reliable information to financial statement users, played a major part in the financial institutions’ crisis. The role of auditing is not to stop management from making poor business decisions, but it is to make sure that those decisions are properly disclosed (Rapoport, 2010). HoweverRead MoreThe Importance of External Auditor’s Independence Essay1614 Words   |  7 PagesIndependence According to Gillespie, Lewis and Hamilton (2004:221) an audit is: â€Å"a scrutiny of the accounts by a qualified auditor who carries out checks on the figures so as to establish whether the accounts show a true and fair view of the results and the financial position of the entity.† According to Wikipedia (2011a), auditor independence refers to â€Å"an attitude of mind characterized by integrity and an objective approach to the audit process†. Independent auditing has been an important part of theRead MoreThe Financial Crisis Of 2007-20081419 Words   |  6 Pagesagreed that this is a â€Å"one in fifty years event†, however the latest Great Recession is not a typical cyclical recession of the World Economy and no doubt will last for more that usual two years (Business Wire, Reuters). The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. (M. N. BailyRead MoreThe Great Depression And The Glass Steagall Act1683 Words   |  7 PagesLehman Brothers was founded by German immigrant Henry Lehman and his two brothers Emanuel and M ayer in 1850. Lehman Brothers was able to overcome many obstacles– â€Å"the railroad bankruptcies of the 1800s, the Great Depression of the 1930s, two world wars, a capital shortage when it was spun off by American Express in 1994, and the Long Term Capital Management collapse and Russian debt default of 1998.† (Investopedia) But the collapse of the housing market was one obstacle they could not overcome. DuringRead MoreCorporate Fraud Has Taken The World By Storm For Over The Past Decade1479 Words   |  6 Pagesfraud cases to ever occur was Enron, Bernard Madoff, Lehman Brothers, and Cendant, with Enron being the largest accounting scandal to ever take place. Prior to Enron’s fraud scandal coming to light in 2001, they were the seventh largest company in the United States by revenue, this was the same year Enron filed bankruptcy (da Silveira, 2013, p. 315). In addition to being one of the largest companies, Enron received numerous awards for their positive business role. Enron received the award for beingRead MoreDeceptive Accounting and the Global Financial Crisis2751 Words   |  11 Pagesfinancial crisis along. Amid the crisis, world economies tanked causing the fall of major economic giants. The unprecedented collapse of Lehman Brothers, American International Group (AIG), General Motors, WorldCom, Enron, Fannie Mae and Freddie Mac nearly took the global economy down with it. In light of emerging studies, corporate malfeasance was one of the leading causes for the collapse. All firms ought to conduct their affairs with due regard to the welfare of the parties involved, the economy, and theRead MoreFinancial Crisis Of 2007-2 008 : How It Happened And Find Out The Reasons1827 Words   |  8 PagesagrÐ µÃ µd that this is a â€Å"one in fifty years event†, hÐ ¾wever the latest Great Recession is not a typical cyclical recession of the World Economy and no doubt will last for mÐ ¾re thÐ °n usual twÐ ¾ years (Business Wire, Reuters). The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and a downturn in economic activity leading to the 2008–2012 global recession and contributing to the European sovereign-debt crisis. (M. N. BailyRead MoreEnron Research Paper3111 Words   |  13 PagesTHE COLLAPSE OF ENRON amp; THE INTRODUCTION OF THE SARBANES OXLEY ACT BY TREVOR GARRETT 02/25/2011 Abstract Enron Corporation was one of the largest energy trading, natural gas and Utilities Company in the world that was based in Huston, Texas. The downfall of Enron is one of the most infamous and shocking events in the financial world, and its reverberations were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading companies in the U.S and considered amongRead MoreU.s. Sarbanes Oxley Act1611 Words   |  7 PagesThe world has witnessed a series of corporate bankruptcies in the recent decades like Enron, Lehman Brothers Inc, Global Crossings, and Tyco in the USA; HIH in Australia, Parmalat in Italy, APP in Asia, and Islamic bank Ltd. of South Africa. These collapses have weakened and shaken the confidence of shareholders, debtors, governmental institutions, and other similar relevant stakeholders in corporate governance (CG) and the stock markets, and led to regulating many reforms and codes of best governanceRead MoreCase Study Enron Scandal5642 Words   |  23 PagesCASE 3 Enron: Questionable Accounting Leads to Collapse Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant Tilted ―Eâ€â€" in front, slowly revolving in the Texas sun. Enron‘s suggested to Chinese feng shui practitioner Meihwa Lin a model of instability, which was perhaps an omen of things to come. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt that had been concealed through a complex scheme