Question

Topic: Auditor’s Public Interest Responsibilities and Audit Quality

Background and Context:
In a recent interview with ABC news, the now former Chairman of the Australian
Securities and Investment Commission (ASIC) Greg Medcraft warned that:
“We don't want to have another Enron. And the key to not having another Enron is
making sure auditors do their job and to get assurance that financials are free of
material misstatement" 1
Enron was an energy, commodities, and services company based in Texas, USA. It
was founded in 1985. Prior to its bankruptcy on 3

rd December, 2001, Enron employed
close to 30,000 staff and was a significant electricity, natural gas and communications
company, which had reported revenue of nearly US$101 billion during the year 2000.
By the end of 2001, it was revealed that Enron's reported financial position was
manipulated by a systematic and preconceived accounting fraud, known since as
the “Enron Scandal”. Enron has since become known as an infamous case of
audacious corporate fraud and corruption.
The scandal also brought into question the accounting practices and activities of many
corporations in the USA and was a factor in the creation of the Sarbanes–Oxley Act of
2002. The scandal also led to the demise of the accounting firm, Arthur Andersen,
which was Enron's auditor.
In more recent times, according to ASIC, based on samples of key audits performed
by Deloitte, KPMG, PWC and Ernst & Young, over an 18 month period up to December
2016, 23% had not provided reasonable assurance that accounts were accurate or
free of misstatements.
As stated in the Accounting Professional and Ethics Standards Board (APESB) APES
110 Code of Ethics for Professional Accountants, under Section 100 Introduction and
Fundamental Principles,
“A distinguishing mark of the accountancy profession is its acceptance of the
responsibility to act in the public interest.”

With reference to the APES 110 Code of Ethics for Professional Accountants
document and the ASIC website, research “audit quality” and discuss what
auditors need to do to address the “warning” noted in the statement made by
Greg Medcraft above. (750 - 900 words)

Answer 1

Answer

The five fundamental principles declared in APES 110 are: integrity, objectivity, professional competence and due care, confidentiality and professional behavior. All members of the professional bodies must comply with them all.

The five fundamental principles

1) Integrity

A professional accountant should be straightforward and honest in all professional and business relationships.

2) Objectivity

A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

3) Professional competence and due care

A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional services based on current developments in practice, legislation and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards.

4) Confidentiality

A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties.

5) Professional behaviour

A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.