The lessons for auditors and regulators from Enron fraud Essay

The lessons for auditors and regulators from Enron fraud - Essay ExampleThis paper concerns the auditing as an fact-finding process performed to verify the reliability and accuracy of a social clubs state of affairs for the break down fiscal period. A comprehensive and authentic audit report adds to shareholder values and assists the companys stakeholders to analyse how the management has responded to their financial interests. In addition, business decisions of third party stakeholders such as banks, other(a) l give the sacking institutions, and investors are centred on the companys annual audit report. It seems that even a substantially structured audit programme may fail to provide desired forbiddencomes unless the whole audit aggroup pays special attention to each and every phase of the audit process. The past decade witnessed a series of corporate scandals including Lernout & Hauspie, Arthur Anderson, Enron, WorldCom, Parmalat, Peregrine Systems, Rite Aid, and Homestore. com. Subsequent investigations have proven that majority of those failures were attributable to accounting fraud. However, these incidents greatly increased the significance of audit work and firms nowadays allot more money for developing interior(a) control systems. Many of the economists argue that weaker corporate governance structure also greatly contributed to those corporate failures. As a result, organisations are vehemently trying to improve their corporate governance framework. Evidently, audit firms have make strategic amendments to their processes and procedures to detect frauds and errors in the account books of the client on time. This paper will analyse the lessons that auditors and regulators mustiness learn from Enron Fraud. Enron Scandal Overview In 1985, The Huston Natural Gas integrated its natural gas pipeline companies with those of InterNorth infra the supervision of Kenneth Lay to form Enron. The Enron became the North Americas largest natural gas dealer by 1992 and the companys gas contracts trading operations significantly contributed to its market dominance. The firms pedigree rose by 311% during the period 1990-1998 and its market capitalisation went over $60 billion by the end of the year 2000. This unimaginable growth assisted the company to be rated as the most innovative Brobdingnagian company in Fortunes Most Admired Companies survey. Unlike other corporate giants, the Enron had not published its balance sheet along with statement of earnings and this practice persuaded financial analysts to explore the companys sources of income. Despite the explanations given by the company officials, Enron stocks started to fall in 2001 mainly due to its ill-defined nature of business and vague accounting practices. Following the stock level declines, the company faced a series of challenges including restructuring losses, the US Securities and Exchange Commission (SEC) investigation, liquidity issues, and credit rating downgrade. The E nron scandal was revealed in October 2001 and it little by little led to bankruptcy. Reports indicated that Enron scandal was the biggest audit failure at that time. Jeffrey Skilling, the former President, CEO, and COO of the Enron Corporation, misled the companys stakeholders through with(predicate) special purpose entities, accounting loopholes, and unsupported financial reporting practices and therefore they (stakeholders) were unable to identify debts resulted from failed deals and projects. These unprofitable practices assisted the company to exaggerate its profit figures and thereby unfairly retain the trust of its shareholders. Andrew Fastow, the Chief monetary Officer, and other executives misled the Enrons board of directors and also forced Andersen to neglect the issues. As per reports, the Enron shareholders lost nearly $11 billion when the companys stock price fell from US$90 per share in mid-2000 to less than $1 in late-2001 (World News Inc, 2012). Following this is sue, the U.S Securities and Exchange Commission commenced an investigation to bring out the actual reasons behind this