DEMI T.

BERNARDINO | BS Accountancy IV-A

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Examples of consulting services and their threats to the independence of the auditor:
a) Audit/review of the clients financial statements the independence of the auditor may be affected when
he intentionally overlooks incorrect accounting treatments of the client and issues an unmodified opinion
even though it is inappropriate.
b) Tax services the auditor may manipulate the financial statements of the client in order to have lower
income tax
c) Internal Auditing - since the auditor is an employee of the management, he may be biased in the
performance of auditing procedures
The requirements for the preparation of audit work papers include having it prepared on a timely basis with
sufficient and appropriate records of the basis and evidences of the auditors report. It should also include the
audit procedures, findings, and conclusions made during the audit process in order to support the auditors
report as well as to aid in the conduct and supervision of the audit. It is required that such work papers remain
in the possession of the audit firm for confidentiality purposes, except in cases provided by law.
Rules strengthening auditors independence:
a) Prohibition of some non-audit services which, if provided, impairs an auditors independence I agree
with this rule because the auditors will be forced to perform only those services that are less prone of
being the cause of impairment to an auditors independence
b) Requires that audit clients should change their audit firms from time to time I also agree with this rule
because it prevents the possibility that the auditors and the clients may develop a close relationship which
may affect the auditors independence
c) Prohibition of an audit firm to engage with a client to which a former audit team member has been
employed This is also a reasonable rule because especially if such member has continuing influence in
the firms operations
d) Require the auditor to report certain matters to the audit committee, including "critical" accounting policies
used I agree with this rule because it can help update the audit committee about the findings of the
auditors
e) Requirement of the audit committees pre-approval of services provided by auditor This rule is also
reasonable because it regulates the allowable services to be provided by the auditors
Enrons top management (especially Fastow, Skilling, and Lay) They were the ones who have conspired to
carry out the fraudulent acts and apparently, the ones who have benefitted the most
Arthur Andersen Without the firms involvement, the fraud that was clearly happening could have been
discovered earlier and the infamous scandal could have been stopped from happening
The responsibility of audit firms is to just stick with the provisions of the SEC. However, in my opinion, the
quarterly financial statements of the clients should be audited because it can aid to discover fraud and errors
as soon as possible. In that way, the company can already think of ways to solve the problem.
a) Independence the auditors were closely involved with some of Enrons company transactions
b) Planning and supervision the auditors were not properly supervised during the audit process thats why
they have gone beyond their limitations in terms of involvement with the company
c) Internal control the auditors did not obtain sufficient understanding of the clients internal control
d) Disclosure the disclosures made by Andersen were not really informative because it was not stated clearly
e) Opinion the audit reports issued by Andersen were inappropriate because they should have issued a
disclaimer of opinion instead of unqualified opinion since it has departed from its independence function
Yes, professionalism as regards to the public accounting discipline has indeed evolved over the years. I think
one of the main factors is that professional accountants today are more likely to prioritize their personal
interests over the public. They tend to work on things which can benefit themselves, and not the community
that they serve for.

Brief Summary:
The downfall of Enron may have revealed one of the most scandalous fraud in the business industry, but at
least it had served as a lesson and at the same time, a warning to those who want to follow the footsteps of the likes
of Lay and Skilling. The scandal also caused the regulatory bodies to be stricter with their rules and regulations
especially in the accounting and auditing of companies. A new act, which is the Sarbanes-Oxley Act, was even
promulgated because of it. Such act was made in order to prevent the scandal from happening again. So in conclusion,
the Enron Scandal served as an eye-opener to the regulatory bodies of the accounting and auditing industries, and
also to the public, for them to be more aware and mindful about what the financial statements of a certain company
actually implies.