Solved by verified expert :BACHELOR OF ACCOUNTING
(HONS)
COURSEWORK
Year
2012
MONTH
DECEMBER 2012
Subject
FIN4054 – AUDITING
AND ASSURANCE SERVICES 1
Weightage
40%
Submission Date
WEEK 8
Regulations
A.
Late Submission
·
A 10% deduction per day of total coursework
marks (excluding weekends and public holidays).
·
Late submission between 5 to 10 days,
results in a 50% deduction of total coursework marks.
·
Late submission past 10 days results in an
automatic 0% for coursework and the student will be barred from the final
examination.
B. Deliverables
Students must submit all
materials supporting their coursework listed in the deliverable section.
The coursework must be done individually
and must be entirely your own work. Please make sure that you are aware of
the rules concerning plagiarism. If you are unclear about them, please
consult your program coordinator/lecturer.
The
coursework should exhibit formal research skills i.e. with a table of
content, proper citations, references, and appendices.
The
coursework write up must be able to demonstrate critical analysis and
application of both theory and practical issues to the company that you
have selected.
Student
may include additional relevant data/information apart from the proposed
guidelines in conjunction to your research. Additional marks will be
awarded for such attempt.
A CD
containing the softcopy version of your coursework should be submitted as
well (if required).
BACHELOR OF ACCOUNTING
(HONS)
COURSEWORK – QUESTION
Large number
of corporate collapses gave rise to a worldwide scrutiny of the accounting
profession and the implosion of Arthur Andersen, a global accounting firm and
one of the then Big Five accounting firms.
In May 2001,
Sunbeam’s alleged accounting fraud resulted in Arthur Andersen making a settlement
for a shareholder suit of $110 million. A month later, Arthur Andersen agreed
to pay a $7 million fine after SEC charged it with issuing false and misleading
reports bolstering Waste Management by more than $1 billion between 1992 and
1996. Arthur Andersen had also paid part of a $229 million settlement to
shareholders of Waste Management. The year 2001 ended with the massive impact
of Enron’s bankruptcy in December.
The SEC
began its investigation in late October, examining its accounting practices and
the performance of Enron’s auditor, Arthur Andersen. The accounting practices
being questioned included complex debt hiding schemes using special-purpose
entities, manipulation of the Texas power and energy markets, and bribes; its
auditor, Arthur Andersen was alleged to have breached its independence by being
involved as internal auditor for the company, and by allowing ex-audit partners
to take part in its governance. Arthur Andersen was later indicted for its
alleged obstruction of justice by destroying Enron documents. The firm was
found guilty of a criminal offence in June 2002.
In Enron’s
case which involved manipulation of accounting books and the use of accounting
services provided by Arthur Andersen as the accountant and management
consultant. The company was alleged to have inflated revenues and cash flow
figures to boost share prices and to satisfy analysts.
WorldCom was
reported to have overstated its cash flow by booking $3.8 billion in operating
expenses as capital expenses and provided its founder with a $400 million
off-balance sheet loan. The company further stunned Wall Street by announcing
it found another $3.3 billion in improperly booked funds, and taking a goodwill
charge of $50 billion. The former chief financial officer (CFO) and
ex-controller were arrested and charged with criminal activities. WorldCom’s
auditor was Arthur Andersen.
Leung, P, Coram, P, Cooper, BJ &
Richardson, P ‘Modern Auditing &
Assurance Services’ 4th edition, John Wiley & Sons Australia
Ltd
Required:
Your task is
to read the following book;
Toffler, BL & Reingold, J ‘Final Accounting Ambition, Greed and the
fall of Arthur Andersen’Currency Doubleday, New York
In addition
to the required reading above, you are also required to answer the following
questions:
i)
Every profession is concerned about the quality of
services, and the public accounting profession is no exception. Quality audits
are essential to ensure that the profession meets it responsibilities to
clients, to the general public and to regulators who rely on independent
auditors to maintain the credibility of financial information. To help assure
quality audits, the profession and the regulators have developed a multilevel
regulatory framework. For the purpose of describing the framework, these
activities may be organized as follows:
·
Standard setting
·
Firm regulation
·
Self or peer regulation
·
Government regulation
Analyse
whether Arthur Andersen had practiced the regulatory framework for ensuring
quality services before its doom.
(25
marks)
ii)
The word ‘ethics’ is derived from the Greek word
ethos, meaning ‘character’. Whereas morality focuses on the ‘good’ and ‘bad’
human behaviour, ethics focuses on what is ‘right’ and ‘wrong’, and how and why
people act in a certain manner. It focuses on a study of choices, standards and
behaviour.
IFAC’s
mission is the worldwide development and enhancement of an accountancy
profession with harmonized standards able to provide services of consistently
high quality in the public interest. The IFAC Code establishes ethical
requirements for professional accountants. A member body or firm may not apply
less stringent standards than those stated in the IFAC Code.
The
following are the threats to compliance with the Code of Ethics (IFAC Code) by
professional accountants in public practice:
i)
Self-interest threat
ii)
Self-review threat
iii)
Advocacy threat
iv)
Familiarity threat
v)
Intimidation threat
vi)
Public practice behaviour
Analyse
whether Arthur Andersen had encountered any of the threats above and explain
how it was dealt with before its doom.
(25
marks)
iii)
In the provision of auditing services, an auditor is
liable to compensate a plaintiff if :
·
A duty of care is owed to the plaintiff
·
The audit is negligently performed or the opinion is
negligently given
·
The plaintiff suffered a loss as a result of the
auditor’s negligence
·
The loss is quantifiable
Negligence
has been defined as any conduct that is careless or unintentional in nature and
entails a breach of any contractual duty. If the auditor has been negligent,
then the client may sue the auditor for breach of an implicit term of the
contract to exercise reasonable care and skill, so as to recover any
consequential loss suffered.
In
your opinion, was Arthur Andersen negligent during the provision in its
auditing services to its many clients? Please describe the events that
demonstrate their negligence.
(10
marks)
iv)
Client
evaluation is an important element of quality control. (ISA 220.14) states:
The
engagement partner shall be satisfied that appropriate procedures regarding the
acceptance and continuance of client relationships and specific audit
engagements have been followed, and the conclusions reached in this regard are
appropriate and have been documented.
The following
steps are good practice in accepting an audit engagement:
a)
Client
evaluation
·
Evaluating
the integrity of management
·
Communicating
with existing auditors
·
Making
enquiries of other third parties
·
Reviewing
previous experience with existing clients
·
Identifying
intended users of the audited financial statements
·
Assessing
a prospective client’s legal and financial stability
·
Evaluating
the entity’s condition of accounting records and internal control structure.
b)
Ethical
and legal considerations
·
Evaluating
independence
·
Assessing
competence to perform the audit
·
Determining
ability to use due care
(40 marks)
(Grand total: 100 marks)
Your
essay should include:
·
Cover Page
·
Grading Scheme
·
Executive Summary
·
Table of Content
·
A short description on the
background information of Arthur Andersen.
·
Answer to the question
·
List of
References/Bibliography
·
Appendices (if relevant)
BACHELOR OF ACCOUNTING (HONS
