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Issue in David Lawrence

Issue : David Lawrence was be auditor in Androids for 20 years

Recommendation :
The management of Android need to change Auditors every 5 years to avoid
any conflict of interest and any possible threat.
Android must implement rotation of appointment auditors. This is because
once auditor audit the client for too long, familiarity with client would exist,
therefore lack of independence.

Issue in Enroona
Issue : Android assisted to puff up reported return of off Balance Sheet
As an auditor, they must apply fundamental principles towards his work such
as be a professional and act integrity, objectivity and free from any influence
that might impair his independence. Integrity means auditor must be
straightforward, honest and sincere. Objectivity is member shall to be free
from any interest.
David cantikkan balance sheet enroona supaya performance enrona bagus,
tapi benda tu tak bagus sbb david dah tipu statement balance sheet tu,
sepatutnya david kena work dengan ikhlas.
Someone should supervise davids work and all his employees
Kerja david mesti dipantau dengan any supervisor to ensure that david do the
ethical behavior.
Management should improve their business strategy to avoid any losses

Many off-book partnership not properly accounted for & were not
independent entities
Recommendation : Chewco and Chewbacas account must be shown to
management to indicate their performance


Androids used accounting practices that allowed Enroona to hide its debts to allow
Enroona to have a good financial statement.

Creative accounting is practically legal but it does not help to achieve the
target standards to be accomplished.
Androids other client, Solid Waste also used improper creative accounting
and Androids help them to enhance their reported income.


Admit mistakes to SEC for producing improper unqualified audit report for
Enroona since 1997.
1. Cooperate with SEC to investigate the case
2. Provide evidence and speak truthfully.
Sack/Fire the engagement team that responsible in auditing Enroona.
1. Restructure the organization
Revised the audit process of the company
1. Include more reviews from upper management for true and fair view.
2. Avoid members with conflict of interest.

There is a familiarity threat for a professional auditor in public practice.

David being the auditor of Enronaas account for the past 16 years.
This relationship lead to unfairness of making auditing because they had
know each other for a long period of time.
There is a close relationship between them

Rotation of the appointment of auditors

Once the audit had engaged with the client for so long, familiarity with the
client would exist.
This lead to lack of independence
So, in order to avoid this threat, it is suggested that a rotation of auditors is
imply in this company.
It is usually the rotation is about the 5 years for a auditor.

There is also creating self-interest threat for a professional auditor in public practice.

Androids are afraid that they will lose awarding future audit engagement if
Androids couldnt do what the management of Enronaa asked them to do.
Enronna is Androids single biggest client
Reaching audit fees of up to $100million per Annum.
All of the information gather lead the auditor to be lack of independency
o Having undue dependence on total fees from the client
o Concerned about the possibility of losing a significant client


Policies and procedures to implement and monitor quality control of

A disciplinary mechanises to promote compliance with policies and
Timely communication of a firms policies and procedures, including any
changes that them faced, to all partners and professional staff and
appropriate training and education on that particular policies and procedure.

Issue :Android did not have integrity with their clients.It shown when
Androids assisted their client, Enronaa and Solid Waste to issue a false audit report
for their financial statements. In addition, Androids also didnt apply the auditors
integrity responsibility when they shredding their clients documents .

Recommendation :

Android should follow Section 110 Integrity in MIA By-Laws.

Android should keep clients documents for evidences of the work they
did on their clients.
Top level management must have integrity to encourage their staff and
become role model to the company.

Issue in Solid Waste


- Act of deception, omission or perversion of truth.


Fraudulent financial reporting involves intentional misstatements

like manipulate accounting record.

In 1988

Financial Statement Fraud. Involves misrepresentation financial

statement by overstating the expenses.
Solid Waste repeated final year adjustments to reduce depreciation
expenses on its property, plants and equipment cumulatively from the

beginning of the year.

Its failure to accrue tax and self-insurance expenses.
Improper use of purchase accounting to increase its environmental

remediation reserve
Refusal to write-off permitting and project costs on impaired or

abandoned landfills.
So, management responsible for overseeing the activities of employee and
typically does do by implementing and monitoring processes and internal
controls. (pg 160)

Not follow the accounting principle, standard and procedures

Solid Waste adopted a non-GAAP method of capitalizing interest on

landfill development costs.

So, management should identify and analysis of risk relevant to he
preparation of financial statements in accordance with appropriate

accounting frameworks.
Identify factor affecting risks
Assess significance of risk and likelihood of occurrence presentation and

disclosure. (page 286 Wanies book)

Determine the action necessary to manage risk.

Improper changes of operating expenses to the environmental remediation

reserve (ERR)

Self-interest threat

Threat that a financial or other interest will inappropriately influence the

professional accountant judgement or behavior
Arise when Android aware that Enronaa is the one of the biggest clients for
them and have received higher audit fee
So for androids financial interest, they doesnt want to lose Enronaa as a
client because they are a large source of income generating client.


Dispose the entire financial interest

Not involved in audit
Disclosure of interest
If aware of interest of staff, review all work performed by him