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.
.0/msohtmlclip1/01/clip_image001.gif” alt=”Text box: plagiarism is presenting somebody elses work as your own. it includes: copying information directly from the web or books without referencing the material; submitting joint coursework as an individual effort; copying another students coursework; stealing coursework from another student and submitting it as your own. suspected plagiarism will be investigated and if found to have occurred will be dealt with according to the procedures set down by the university/college.”>
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, Sunbeams 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 Enrons bankruptcy in December.
The SEC began its investigation in late October, examining its accounting practices and the performance of Enrons 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 Enrons 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. WorldComs 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 AndersenCurrency 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.
IFACs 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 auditors 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 clients legal and financial stability
· Evaluating the entitys 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