Presentation on theme: "The Enron Scandal – Timeline"— Presentation transcript:
1 The Enron Scandal – Timeline Whistleblower Sherron Watkins meets with new CEO Ken LayEnron acknowledges SEC investigationEnron files for Chapter 11 bankruptcy protectionCEO Jeff Skilling ResignsCEO Ken Lay encourages employees to buy stockEnron says it overstated earnings by $600 million since 1997Congressional hearings begin on the largest corporate bankruptcy in U.S. history
2 The Enron Scandal - Implications Widespread public outcry regarding role of auditing profession in detecting fraudPublic Oversight Board announces its dissolution AICPA issues calls for a new “reporting model”AICPA Board passes a resolution to support a ban on auditors of public companies from providing internal audit and financial systems design and implementation servicesQuestions:Is there need for a new reporting model? If so, what would it look like?Is the AICPA Board’s resolution necessary? Should such services be prohibited? Is such a prohibition designed to address independence in fact or appearance, or both?Should auditors be allowed to perform consulting services for audit clients?How can auditors improve fraud detection?
3 The Enron Scandal – Auditing Enron has underscored the importance of some basic auditing issues:Assessing management integrity and its influence on the control environmentUnderstanding the client’s core business strategy and risksScrutinizing related party transactions (RPTs)Questions:How do auditors assess integrity?Why do auditors need to understand a client’s business strategies and objectives?How can auditors be certain that they know of all RPTs?
4 The Enron Scandal – Auditing Other basic auditing issues:Auditing estimates included in the financial statementsCorroborating management representationsObtaining a management representation letterQuestions:Why is it so important to carefully evaluate estimates included in the financials?To what extent must auditors corroborate management’s representations?What is the value of the management representation letter?
5 Dissolution of the POBCreated as an autonomous body to oversee and report on the self-regulatory programs of the SEC Practice SectionVoted to terminate its existence no later than March 31, 2002The SEC has proposed an oversight body dominated by public members who are not affiliated with the professionQuestions:Who will fulfill the POB’s function?What implications will the Board’s dissolution likely have for the profession’s self-regulating status?Who should have oversight authority over the profession?
6 The Global Credential Vote The CPA Vision project was the impetus behind the credentialThe credential had ardent supporters and pundits40 percent of the AICPA membership voted62.7 percent against37.3 percent forQuestions:Why do you think that only 40 percent of the members voted?What are the pros and cons of a global credential open to non-CPAs such as the one proposed by the AICPA?
7 New Statements on Auditing Standards The ASB has recently issued two new standards:SAS No. 95, Generally Accepted Auditing StandardsSAS No. 96, Audit DocumentationSAS No. 95 – establishes authoritative standing of various publicationsSAS No. 96 – replaces the term “working papers” with “audit documentation” and provides further guidance on necessary audit documentation
8 “On the Horizon” Fraud Task Force Risk Assessment Task Force The ASB recently voted to issue the task force’s draft of a revision of SAS No. 82 as an exposure draftThe proposed SAS provides more guidance related to the detection of material misstatements due to fraudThe ED is slated for release in March, 2002Risk Assessment Task ForceThe task force is continuing to refine a draft of a revised audit risk model that increases the focus on understanding business riskMore emphasis will be placed on understanding the client and its business environmentA draft of the new standard is expected soon!