Referring to Section 550 Quality Assurance and Practice review of the MIA By-Laws (on professional ethics, conducts and practice) and ISA220 Quality Control for an Audit of Financial Statements, do you believe that the engagement leader of an audit (like David Duncan on the Enron audit) should have authority to overrule the opinions and recommendations of the accounting & auditing function? Why or why not?
In our opinion, the engagement leader of an audit should not have the authority to overrule the opinions and recommendations of the accounting and auditing function. To support our judgment, we refer the case to Section 550 Quality Assurance and Practice Review of the MIA ...view middle of the document...
Andersen also has a group of expert accountants tasked with reviewing and passing judgment on difficult accounting, auditing and tax issues called Professional Standard Group (PSG). According to section 550.4 states that the objectives of the practice review program are:
(a) | To ensure that all members in public practice maintain, observe and apply the relevant professional standards, so as to assure that those members in public practice, their firms and their employees are competent, ethical, and exercise due professional care in their professional work; |
(b) | To assist members in public practice to improve their professional standards where necessary; and |
(c) | To identify areas where members in public practice may require assistance in maintaining and observing professional standards. |
We can see that, although Andersen had PSG as practice review program, the audit team lead by Duncan ignores the disagreements and concerns raised by the PSG. Not only that, Duncan had also been inappropriately adjusting the judgments made by Carl Bass and Benjamin Neuhausen.
The arguments could also be related to ISA 220 on System of Quality Control and Role of Engagement team. It mentioned that the firm has an obligation to establish and maintain the system of quality control to provide it with reasonable assurance that the firm and its personnel comply with professional standards and applicable legal and regulatory requirements. It is because that Duncan still continues to approve on setting up SPE although he knows that the existence of SPE itself does not reflects true and fair financial statements.
From the reasons above, we can conclude that David Duncan absolutely have no authority to overrule the opinions and recommendation of the auditing and accounting function like PSG because the PSG serves as a quality control created by Andersen to prevent any fraudulent financial statements to arise from the clients’ company. By ignoring the opinions, it means that Duncan ignores the whole concept of reporting to direct channel, and the compliance with the rules, regulations, policies and corporate governance.
After Carl Bass was removed from the Enron account, he indicated to his boss that he did not believe Enron knows about internal discussions regarding accounting and auditing issues. Do you agree with Bass’s position? Why or why not?
In our opinion, we do not agree with the removal of Carl Bass from the Enron account. In general, it is hard not to agree with Carl Bass’s position that Enron should not have known about the internal discussions regarding accounting and auditing treatments. This is because, as a chartered audit firm, Anderson has an obligation to maintain its independence and objectivity towards all clients. In order to maintain independence and objectivity, Anderson should have a policy that prevents this type of communication with the client about the treatment of complex accounting...