Enron Auditing

“It is unfortunate that Ronnie Chan got tied up in the Enron situation, it is quite unfair to blame independent directors who have to depend on the external and internal auditors who are suppose to be giving independent and capable reports.” (Mark Mobius) The above quote lays the responsibility of the fall of a company on the auditors. The biggest audit fail of Enron Corporation not only led the company towards declaring bankruptcy but also dissolved one of the five big professional services companies, the Arthur Anderson. However, it may not be fair to blame the auditing profession entirely for the fall of a company. In the case of Enron, the chief financial officer himself concealed

These types of audits include multiple regulations, standards and government requirements which take care of the entire framework at once. The board of directors after analyzing the risks shares them with the shareholders giving them a clear picture of the current state and what may be expected in the future. Having this done, they now focus on the risks and manage them efficiently. There are various international standards and regulators for auditing. Some of them are listed below;

International standards on auditing (ISA) – These are the professional standards for performing auditing and are laid down by the International Federation of Accountants (IFAC) under the supervision of International Auditing and Assurance Standards Board (IAASB).

The statutory audits in European Union are performed based on these standards and the European court of auditors performs its audits in compliance with the IFAC.

The ISAs are as follows;

1- Respective responsibilities – These provide the standards for the objectives and responsibilities of auditors. Their expected involvement in the company’s internal control over financial reporting. Communicating deficiencies and fraud to the

The company executives were involved in making changes in the balance sheet by removing the securities at the end of each quarter. This type of manipulation eventually led to the fall of the financial services firms.

Satyam Computer Services scandal – The chairman of Satyam Ramalinga Raju after having confessed for having manipulated the company accounts was arrested. The company’s auditing partner, PwC was fined $6million by the US Securities and Exchange Commission. It was later revealed that the chairman was withdrawing the salaries of 13000 non-existent employees every month.

The need of the hour is to have auditors identify potential risks in the business of their clients and serve the public interest by enhancing the confidence of investors in the capital market. The control of the auditing profession in UK is adequate with the governing bodies trying their best to strike a balance between self regulation and statutory directives. The recent corporate collapses discussed above, not only explain the shortcomings of auditing profession but also reveal the lack of ethical business practices among companies and