ACCA AA Syllabus A. Audit Framework And Regulation - Development of assurance engagements - Notes 2 / 8
Do you remember these scandals?
ENRON Scandal
In 2000, Enron, a US energy company, deceived investors by fraudulently overstating profitability.
Its auditor, Arthur Andersen, was shown to have lacked objectivity in evaluating Enron's accounting methods.
Other companies that were also involved in corporate frauds included WorldCom, Parmalat, Cable & Wireless and Xerox.
The result of these frauds was a lack of confidence in the way companies were run and audited.
In the USA, this resulted in the Sarbanes-Oxley Act 2002.
Lehman Brothers Scandal
In September 2008 Lehman Brothers, a global financial services firm, filed for bankruptcy in the US triggering a severe world-wide financial crisis.
Lehman lent money to people on low incomes or with poor credit histories.
Following the collapse of Lehman Brothers, other banks failed worldwide and many needed government support to continue.
In light of this global financial crisis, regulators have been considering the effectiveness of the audit and the auditor’s role in helping to prevent corporate and financial institution collapses.
One important area being focused on is the importance of professional scepticism for audit quality.