ANDROIDS UNDER ATTACK

Case Summary
The case study is about Androids is under attack as it was already in the news,
and what made Androids a tastier target was the fact that Enronaa was not the
first time. Its start from they had used accounting practices that allowed Enronaa
to hide its debts, but really these are all within the context of fair value
accounting. Androids was critics that the auditors were incompetent, at worse,
they deliberately overlooked irregularities at Enronaa in order not to lose the
lucrative stream of consulting and other work it provided. Androids also had prior
entanglements with the Securities and Exchange Commission (SEC). Androids
agreed to pay the SEC a civil penalty of USD 7 million to settle charges related to
the firms work as auditors of Solid Waste. This issue is the US SEC found
Androids guilty of issuing materially false and misleading audit reports on Solid
Waste financial statements for the period 1993 through 1996.
Then, Androids also issued an audit report on Solid Wastes financial
statements in which it stated that the companys financial statements were
presented fairly, in all material respects, in conformity with generally accepted
accounting principles (GAAP) and that Androids had conducted its audit of those
financial statement in accordance with generally accepted auditing standard
(GAAS). So, SEC found that Androids representations were materially false and
misleading. While, Solid Wastes financial statements were not presented fairly,
in all material respects, in conformity with GAAP. Androids had allowed the
management of Solid Waste to use improper accounting to inflate its operating
income and other measures of success. It was the largest restatement of results
in the history of the SEC. Besides that, SEC found Androids failed to ensure that
all known misstatements were quantified and all likely misstatements were
estimated. SEC also found that Androids knew or was reckless in not knowing
that the auditors of the financial statements on which Androids issued
unqualified audit reports during those years that were not conducted in
accordance with GAAS.
Androids thereby, engaged in improper professional conduct. The Solid
Waste case followed Androids decision to pay USD 110 million to settle a lawsuit
on audits at Sunbeamic, another US client found to have less than reliable
accounts. David and Ken knew that the firm would be in deep trouble for its role
in Enronaas collapse. Androids was already under probation with the SEC and
another scandal in the likes of Enronaa would mean the end of their business.
The sessions would pressure Androids auditors to view accounting issues
Enronaas way. Androids knew that what Enronaa wanted and usually sought to
give it to them. The Enronaa account had become so lucrative for Androids that
the firm was unwilling to step away.

Who lets the damage in Android?

There are several characters involved in this case that leads the company into serious problem. Here is
our argument on the characters:

David Lawrence
David Lawrence, 43 years of age, joined the auditing firm of Androids 20 years
ago. David earned salary of USD 700, 000 per annum when he works in Androids.
He was the Androids partner in charge of auditing Enronaas accounts since
1987. His job was to check Enronaas accounts and make sure that they fairly
represent the state of the business. Androids had been Enronaas auditor for the
past 16 years. David is one of the Androids partners, who are responsible to
check Enronas account and to ensure they are fairly representing the state of
the business. The issues arise when David conducts the audit in Enroona and
there are evidence suggesting Android assisted to puff up reported returns of
off Balance Sheet activities. In addition, he is the one applying creative
accounting on nronaas books which allowed to hide enronaa debt and losses.
Creative accounting defines as the accounting process consisting of dealing with
many matters of judgment and of resolving conflicts between competing
approaches to the presentation of the results of financial events and
transactions. There were many off-the-books partnerships had not been properly
accounted for and were not independent entities. He knew that the firm would be
in deep trouble for its role in Enronaas collapse. The general expectation was
that as auditor would have been able to spot large scale fraud or deception.

Nancy
She also one of the important characters in Androids case and Androids
auditing firm. Actually, Nancy is a lawyer at Androids Chicago Headquarters. She
also one of the person who are advised David Lawrence about Androids policies
regarding retention of documents from client engagement. Besides, she also
main key role in the conviction of Android on charges of Obstruction of Justice
when she gives email to Androids employees on the policy of routine document
shredding. Android use the policy called for keeping final versions of the memos
while discarding drafts. In a big or public listed company, email that contained

important document need to be keep because in case there are problem arise
due to fraud or errors, email can be the most important evidence that can be
used to trace back all the matter. What Nancy try to do here is, she gives an
order to David to delete all the information because she already know Android
might been sue if the email still kept. By doing that, Android seen to avoid legal
action from third party because if action had been taken, Android might claim
that they are not guilty because there is no evidence can be found. Nancy action
would give bad impact to Android and might give bad reputation to Android from
the perspective of shareholder. Shareholder will appoint auditor if the audit firm
have good reputation and protect their interest. If this matter happens, Androids
client might lost their trust towards Android

Androids Leader
In this case, Androids leader is one of the person the lead damaged to Android.
From the beginning of David appointment, Androids leader has known that David
was a friend to Casey. Casey, previously was Android alumnus and currently
working at Enronaa as Account Manager. The auditors leader also know that
David and Casey often vacation together and leading a group of Enronaa and
Androids colleagues on annual golf outing to elite courses around the country.
The action of Auditors leader might not violate any rules of regulation of the firm
but the problem is, Androids leader from the first place give an opportunity to
third party or client to take legal action toward the firm. As a qualified auditor,
Androids leader sure realise about legal liability. Enronaa pay high audit fees to
Android which is USD 100 million per annum. From the perspective of
shareholders, David and Casey relationship might lead to unsecure feeling due to
David might issues unqualified audit report whereas the report is totally
misstatement. Androids leader should avoid those assumptions from
shareholders from the very beginning. As far as the story goes on, Android once
more face trouble when David issues false report about Eronaa.

Six audit partner

The case that lead the early damage of Android when six audit partner have
involved in auditing scandal in Solid Waste from year 1993 to 1996. The issue
arises when six audit partners issue an audit report on Solid Wastes financial
statement in which it stated that the companys financial statement were
presented fairly in all material respects, in conformity with generally accepted
accounting principle (GAAP) and that Androids had conducted its audit of those
financial statements in accordance with generally accepted auditing standards

(GAAS). Androids start going to face problem when Security Exchange

Commission (SEC) found that the Androids representation was materially false
and misleading because Solid Wastes financial statement were not presented
fairly in all material respect in conformity with GAAP. The six audit partners does
not apply duty as an auditor because in that case they do not know that the Solid
Wastes financial statement were not presented fairly, in all material respect in
conformity with GAAP but they issue an unqualified audit report.

Conclusion
Conclusion that can be made after our group review all the case is David Lawrence will convict and
responsible to all the matters that going on in Eronaa. He leads Androids to get damages because
Security Exchange Commission (SEC) will immediately investigate towards the Androids. However,
the consequences that arise from it will be not only the penalty but also SEC will start to investigate
towards other clients of Androids, since people believe that while one clients have the problem, other
clients as well might have the same problems too. David should not shred the document and admit the
guilty what he made on enronaa to retain reputation of androids and improve their performance in
market. At least, if androids admit the fraud that had been done, they still have time to take immediate
action. On the other hands, if SEC found out themselves, the penalties will be much severe. David
Lawrence supposedly should learn from Solid Waste case and should avoid any offence that make him
get involved in case of Eronaa. He should act according to the fundamental of accounting which is
integrity, objectivity, professional competence and due care, professional behaviour and
confidentiality if he follow all the principle David Lawrence may escape from any charge against him.
Now the matters was very late for him, because Androids is under attack from every angles.