Reference no: EM13492832

Required:

Your task is to read the following book;

Toffler, BL & Reingold, J 'Final Accounting Ambition, Greed and the fall of Arthur Andersen' Currency Doubleday, New York

In addition to the required reading above, you are also required to answer the following questions:

i)             Every profession is concerned about the quality of services, and the public accounting profession is no exception. Quality audits are essential to ensure that the profession meets it responsibilities to clients, to the general public and to regulators who rely on independent auditors to maintain the credibility of financial information. To help assure quality audits, the profession and the regulators have developed a multilevel regulatory framework. For the purpose of describing the framework, these activities may be organized as follows:

• Standard setting
• Firm regulation
• Self or peer regulation
• Government regulation

Analyse whether Arthur Andersen had practiced the regulatory framework for ensuring quality services before its doom.

ii)            The word 'ethics' is derived from the Greek word ethos, meaning 'character'. Whereas morality focuses on the 'good' and 'bad' human behaviour, ethics focuses on what is 'right' and 'wrong', and how and why people act in a certain manner. It focuses on a study of choices, standards and behaviour.

IFAC's mission is the worldwide development and enhancement of an accountancy profession with harmonized standards able to provide services of consistently high quality in the public interest. The IFAC Code establishes ethical requirements for professional accountants. A member body or firm may not apply less stringent standards than those stated in the IFAC Code.

The following are the threats to compliance with the Code of Ethics (IFAC Code) by professional accountants in public practice:

i)             Self-interest threat

ii)            Self-review threat

iii)           Advocacy threat

iv)           Familiarity threat

v)            Intimidation threat

vi)           Public practice behaviour

Analyse whether Arthur Andersen had encountered any of the threats above and explain how it was dealt with before its doom.

iii)           In the provision of auditing services, an auditor is liable to compensate a plaintiff if :

• A duty of care is owed to the plaintiff
• The audit is negligently performed or the opinion is negligently given
• The plaintiff suffered a loss as a result of the auditor's negligence
• The loss is quantifiable

Negligence has been defined as any conduct that is careless or unintentional in nature and entails a breach of any contractual duty. If the auditor has been negligent, then the client may sue the auditor for breach of an implicit term of the contract to exercise reasonable care and skill, so as to recover any consequential loss suffered.

In your opinion, was Arthur Andersen negligent during the provision in its auditing services to its many clients? Please describe the events that demonstrate their negligence.

iv)           Client evaluation is an important element of quality control. (ISA 220.14) states:

The engagement partner shall be satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and specific audit engagements have been followed, and the conclusions reached in this regard are appropriate and have been documented.

The following steps are good practice in accepting an audit engagement:

a)    Client evaluation

• Evaluating the integrity of management
• Communicating with existing auditors
• Making enquiries of other third parties
• Reviewing previous experience with existing clients
• Identifying intended users of the audited financial statements
• Assessing a prospective client's legal and financial stability
• Evaluating the entity's condition of accounting records and internal control structure.

b)    Ethical and legal considerations

• Evaluating independence
• Assessing competence to perform the audit
• Determining ability to use due care

Your essay should include:

• Cover Page
• Grading Scheme
• Executive Summary
• Table of Content
• A short description on the background information of Arthur Andersen.
• Answer to the question
• List of References/Bibliography
• Appendices (if relevant)