Auditing Issues Highlighted During the Enron Scandal: Loss

School: Harvard University - Course: AUDITING ACCT704 - Subject: Accounting

AUDITING ISSUES HIGHLIGHTED DURING THE SCANDAL Student Name Institutional Affiliation Course Instructor Date

2 Loss contingency disclosures, Going-concern analyses, audit documentation, subsequent fact discovery, related-party disclosures, auditor independence, are some of the auditing difficulties that the Enron case brings to light (Ferreira, 2020). Relevant auditing and accounting issues have been masked by the media's focus on the Enron-Andersen case. Although it appears that Enron was able to manipulate earnings more easily due to apparent flaws in the accounting standards application, Andersen's audit may have been less effective due to inadequacies in the application of auditing standards. Off-balance sheet financing contracts backed by Enron stock were a common component of many of the intricate, related-party transactions that Enron engaged in (Ferreira, 2020). The company's stock price also hinged on the expansion of earnings and ongoing access to finance. These factors worked together to produce a high-risk environment for audits. Firstly, Going Concern" Issues. SAS 59, The auditor must assess any circumstances or events that arise during the engagement that cast doubt on the viability of the going-concern assumption as required by the Auditor's Consideration of an Entity's Ability to Continue as a Going Concern (Brown, 2005). The auditor is not obliged to create particular audit procedures to recognize such circumstances and occurrences. Instead, the auditor should take into account whether any conditions or occurrences that were found during the audit run counter to the going- concern assumption when analyzing the audit's overall findings (Benston & Hartgraves, 2002). Auditors are extremely cautious when issuing going-concern opinions due to the possibility that resulted to loss of faith among the creditors and the stockholders in the ratings agencies as well as company for the purpose of downgrading the debt that posed difficulties in existing capital cost and new capital (Brown, 2005). A going-concern opinion might have put an end to Enron even sooner because debt guarantees were based on the company's credit rating.