• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Should auditors be the only ones liable for business collapses?

Extracts from this document...

Introduction

Should auditors be the only ones liable for business collapses? Introduction In most simplistic terms, an audit is the means by which one person is assured by another of the quality, condition or status of a subject matte, which the auditor has examined, which has to be genuinely fair of a and true view. The profession of the audit world is constantly changing, but the main purpose always remains the same - an audit which reports on a company's accounts in accordance with the Company's Act 1985. In the UK economy and indeed the global economy, shareholders confidence in financial information can impact heavily across all areas of the market with an immediate force which can as seen in the Enron and Barings case, wipe off billions off the stock market or increase the value of the company and this is felt throughout the whole global economy. The Problem For an audit to be effective it must be perceived to be credible. A loss in confidence, reputation, or trust can have serious implications. Ultimately for an auditor to provide audit reports that are of a quality service to shareholders, "the reports have to be independent, reliable and supported by adequate evidence" (ICAEW, 2003). ...read more.

Middle

In the case of the auditing firm Pricewaterhousecoopers, who were the auditors for Barings Bank - whereby they falsified the banks account from 1993 to 1994, the auditors were held liable but to what extent, solely or jointly liable for the bank collapse. At the time of the collapse of the bank auditors had signed off four separate sets of accounts each ones as being certified as being "genuinely true and fair". The accounts showed the bank had made a profit of over �78m at December 1994, when infact it had made a huge loss of �174m. When this case was being investigated by the KPMG, the blame initially went solely to the auditors, but further evidence showed that a director and a rogue trader Nick Leeson had been liable for the business collapse hence liability being shared equally. The Barings case study shows of the agency theory - whereby the audit sees the rules to gain the desired result. One piece of evidence will always remain; Enron had overstated its income for more than four years before its collapse. The question is whether this was of negligence or intent to defraud. The agency theory can once again be applied to the audit in this case. ...read more.

Conclusion

Certainly, from the above evidence auditors can be perceived to be liable but their independence can be compromised based upon management, director's trust and ill judgement hence being auditors being declared non responsible if a business collapse was to occur. A Detailed Look - Andersen V's Enron As touched upon earlier in this report, the collapse of Enron was the biggest bankruptcy in U.S history. The company had dramatically re-stated its value, and the after effect was the loss of 4000 jobs of its employees. $70 billion of shareholders investments and employees pension funds were wiped away in an instance, but surprisingly Andersen the auditor of 16 years was not liable for the collapse (with an ongoing investigation) but the Enron demise was blamed on the top executives who gained themselves by securing their "long term financial status" (BBC UK Enron Auditors quizzed, 2002) The main argument that arised in this case was "Anderson also responsible?" Evidence suggests that he may have been perceived to be more at risk and therefore would benefit most from a rigorous audit are simply being refused by audit firms. The danger is that, ultimately the objective of an audit - that of serving the public interest and supporting the running of the economy will no longer be achieved. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level ICT in Business section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level ICT in Business essays

  1. For my business report I am investigating the Co-op erative society supermarket.

    The aim of the production process is to 'add value' to the goods being supplied to customers so that they can be sold at a reasonable price in order to gain returns (revenue). One of the prime concerns of Co-op s production functions aim is to convert inputs into outputs to satisfy the needs of consumers.

  2. E-commerce in Business Companies of Bangladesh.

    Government officials are to be oriented on the benefits of e-commerce. For instance short course can be offered at training centers such as the Public Administration Training Center (PATC). 5. Business associations and organizations should be made aware of the benefits of e-commerce.

  1. In this coursework I need to produce a detailed business report on one medium-sized ...

    The actual choice of communication channel depends upon a combination of: * the need for an immediate feedback or response * costs * speed and urgency * the number and location of the people who need the information * the degree of confidentiality and security required * the desired degree

  2. Apple Incorporation - Case Analysis

    It must find a way to convince others to join in the promotion of hardware and software components for this reliable operating system. Financial Performance (Morningstar.com, 2004) and (Moneycental.msn.com, 2004). Liquidity Liquidity 1998 1999 2000 2001 2002 2003 Inventory Turnover (Merch Inv T/O)

  1. International Auditing.

    These will need to be fully resolved before organizations have the confidence to shift to electronic trading on the net. It is because Internet originally developed as an opening system sharing information all over the world. However, company and organization carry trading through Internet face potential exposure in a number of areas.

  2. "Sensory stimuli are equally perceived equally over the body." Discuss this statement.

    afferents ending in Rufinni endings. They are all thought to respond to mechanical stimulation by producing a depolarising receptor potential. The Pacinian corpuscle is composed of concentric layers of cellular membranes alternating with fluid filled spaces. They are widely distrinuted in muscle, bone and abdomen, but especially abundant in the finger and palm.

  1. "Feasibility study of starting a new business".

    the club, and spend their money rather than going to another bar or Smokey Joes. To meet people's need in music, there will be two floors to the nightclub, one being a disco and 80's room, and the other being a Garage, Hip Hop and drum and bass room.

  2. Tele-working case study

    Quieter Printing Expensive to upgrade Fast Printing Tools, chips and technology have enabled us to build and develop laptop technology First when the computers were made they took the size of approx three bedrooms. But thanks to microchips which helped us to build Laptop, TFT screen, and portable printers.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work