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Auditing and Accounting Cases: Investigating Issues of Fraud and Professional Ethics 3rd Edition by Jay Thibodeau,Deborah Freier
Edition 3ISBN: 978-0078110818Auditing and Accounting Cases: Investigating Issues of Fraud and Professional Ethics 3rd Edition by Jay Thibodeau,Deborah Freier
Edition 3ISBN: 978-0078110818 Exercise 2
Refer to Section 201 of SARBOX. Identify the services provided by Arthur Andersen that are no longer allowed to be performed. Do you believe that Section 201 is needed? Why or why not?
Explanation
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Conferring to the provisions of the law, the auditor is assumed not to deliver other services to any clients who are their audit clients. The services that can be provided by an auditor may be audit-related, non-audit-related services, or assurance related services. If the person performing the audit is delivering audit-related services to any clients, he is assumed to maintain a high degree of independence and that he should not deliver other services for the sake of maintaining such independence.
Some of the services kept out of the purview of working while delivering the audit-related services to any clients are: (a) drafting the accounts, (b) planning and maintaining the internal control system, (b) plotting the information system structure, (d) actuarial services, (e) consulting for plans, and policies, (f) any broker or dealership services, (g) a suit to law cases, etc.
In contrast to the provision given above, the auditor may, in some circumstances, deliver the services, with the permit grant of the audit committee.
Arthur Andersen was the auditor of Enron. In addition to the audit service, it also provided non-audit services like business consulting, tax work, internal audit services, etc. Moreover, more than half of the fees received from Enron related to the non-audit services. Andersen was also hired to provide the internal audit services for Enron for the last several years. The officers of Enron were hired to be the team member of Andersen's team, providing internal audit services.
Arthur Andersen was performing the audit and non-audit services for the client Enron at the same time. Andersen also performs the services mentioned above that are not permissible for the auditor of Enron. These services, if performed by the auditor, requires prior permission of the audit committee of the client. Nothing has been mentioned regarding the permission from the audit committee. Hence, it is against the law to provide the audit client with non-audit services without the permission of the audit committee.
Hence, the Andersen should not perform other non-audit services for the audit client. If he wants to perform any of these services, he should take permission from the Enron's audit committee.
The process of the audit should be conducted with both (a) independence of judgment, (b) independence of presence.
(a) Independence of judgment: The audit to be conducted by the auditor with an independent frame of mind; that is, he must not be influenced or pressurized by someone to perform in any manner they want. The auditor's objectivity must provide an accurate and correct opinion without the influence of others.
(b) Independence of presence: The person conducting the audit should also physically appear as a party different from the company's interest, of which he is the auditor. The person conducting the audit should not have or keep any kind of financial or economic commitments in the entity and must also not be any substantial stakeholders of the client.
Andersen performs various functions for the client other than an audit. This service includes business consulting, internal audit services, and tax works. Providing non-audit services to the client may cause a threat to the independence of the auditor. Andersen may be biased for their client Enron as Enron is a significant client and also receives a considerable amount as fees. The fees received for non-audit services constitute more than half of the total fees, which implies that Andersen will be more focused on non-audit services. This dependence may lead to inappropriate and biased audit opinions.
Andersen must be independent in judgment and also in presence to build the trust of the third party on the auditor report. An inappropriate and biased audit opinion can influence the third-party decision and may also lead to legal consequences against Andersen.
Some of the services kept out of the purview of working while delivering the audit-related services to any clients are: (a) drafting the accounts, (b) planning and maintaining the internal control system, (b) plotting the information system structure, (d) actuarial services, (e) consulting for plans, and policies, (f) any broker or dealership services, (g) a suit to law cases, etc.
In contrast to the provision given above, the auditor may, in some circumstances, deliver the services, with the permit grant of the audit committee.
Arthur Andersen was the auditor of Enron. In addition to the audit service, it also provided non-audit services like business consulting, tax work, internal audit services, etc. Moreover, more than half of the fees received from Enron related to the non-audit services. Andersen was also hired to provide the internal audit services for Enron for the last several years. The officers of Enron were hired to be the team member of Andersen's team, providing internal audit services.
Arthur Andersen was performing the audit and non-audit services for the client Enron at the same time. Andersen also performs the services mentioned above that are not permissible for the auditor of Enron. These services, if performed by the auditor, requires prior permission of the audit committee of the client. Nothing has been mentioned regarding the permission from the audit committee. Hence, it is against the law to provide the audit client with non-audit services without the permission of the audit committee.
Hence, the Andersen should not perform other non-audit services for the audit client. If he wants to perform any of these services, he should take permission from the Enron's audit committee.
The process of the audit should be conducted with both (a) independence of judgment, (b) independence of presence.
(a) Independence of judgment: The audit to be conducted by the auditor with an independent frame of mind; that is, he must not be influenced or pressurized by someone to perform in any manner they want. The auditor's objectivity must provide an accurate and correct opinion without the influence of others.
(b) Independence of presence: The person conducting the audit should also physically appear as a party different from the company's interest, of which he is the auditor. The person conducting the audit should not have or keep any kind of financial or economic commitments in the entity and must also not be any substantial stakeholders of the client.
Andersen performs various functions for the client other than an audit. This service includes business consulting, internal audit services, and tax works. Providing non-audit services to the client may cause a threat to the independence of the auditor. Andersen may be biased for their client Enron as Enron is a significant client and also receives a considerable amount as fees. The fees received for non-audit services constitute more than half of the total fees, which implies that Andersen will be more focused on non-audit services. This dependence may lead to inappropriate and biased audit opinions.
Andersen must be independent in judgment and also in presence to build the trust of the third party on the auditor report. An inappropriate and biased audit opinion can influence the third-party decision and may also lead to legal consequences against Andersen.
Auditing and Accounting Cases: Investigating Issues of Fraud and Professional Ethics 3rd Edition by Jay Thibodeau,Deborah Freier
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