Stanford University The case of Lehman Brothers Holdings Article Discussion
I’m store on a Accounting doubt and want an explication.
Discussion Topic: Audit Failures
The point of the audit is to supply presumption as to the accuracy of financial statements. Situations such as the Enron decay, which were amply due to the insufficiency of an corroborator to descry abstraction and even concealed it, led to speaking open turmoil and traffic insufficiency. Discuss an designation involving audit insufficiency and how it led to open unrest. Also, when evaluating the designation referenced, examine how audit testing should enjoy uncovered audit insufficiency.
Also reply each posted # 1 to 3 down below
Barry Minkow founded the “deposit renewal” audience ZZZZ Best. Delay the help of an deposit demand adjuster coadjutor (Tom Padgett), Minkow makeed a fake audience designated Interstate Appraisal Service which verified details of the fake deposit renewal contracts. George Greenspan, CPA, audited ZZZZ Best in 1986 and failed to investigate any of the deposit renewal plights. The “sites” were actually vague mailboxes throughout the San Fernando Valley. Greenspan common the body of his audit manifestation though interviews and documentation geted from Interstate Appraisal Service, the border to in-effect all the reputed renewal contracts. ZZZZ Best’s renewal matter was a sham and Padgett and Minkow worked concurrently, parallel delay other co-conspirators who had ties to unembarrassed misdeed, to deabstraction lenders and investors out of millions of dollars. Ernst and Whinney was later retained as ZZZZ Best’s accountant in September of 1986 when the audience wanted to go open. Ernst and Whinney conducted a re-examination of Best’s financial statements for the three-month epoch ended July 31, 1986 to assist ZZZZ Best delay its open filings.
As part of audit procedures (for the 1987 audit), an Ernst and Whinney partner investigateed an deposit renewal plight (behind sort spoiled the investigate various seasons initially) which was a construction ZZZZ Best rented out to live the abstraction. ZZZZ Best ascititious symbols; “hired” phony staff; paid the deposit guards at the construction to be complicit; and made Ernst and Whinney symbol a non-disclosure compact where the immovable agreed not to touch the construction possessor, contractors, deposit adjusters, etc. in-reference-to the renewal device. The immovable so agreed that the partner would be the merely immovable figurative recognized on the excursion and agreed not to make-unconcealed the precipitation of the construction, severely stipulationing the opportunity of the audit. Later, Ernst and Whinney discovered manifestation of abstraction (for-the-most-part through the media and an informant) at ZZZZ Best and resigned. They did not make-unconcealed the argue for the surrender to the SEC for six weeks, which was recognized. In the interspace, ZZZZ Best continued to deabstraction banks and investors anteriorly the audience went bankrupt.
Greenspan should enjoy conducted renewal plight investigates as part of his audit testing. Additionally, he should enjoy approached the relationship between Interstate and ZZZZ Best delay a balance dubious eye. Ninety percent of the deposit renewal contracts and connected income ZZZZ Best reputed were from Interstate. The inside controls at ZZZZ best were grossly illmatched – appertinent testing would enjoy alerted the auditor. Contracts consisted of a unique page delay no details or other specifications which should enjoy amending a red weary. The contracts did not fulfill the insured parties, the deposit companies or the locations of the job. Greenspan did not doubt the instruction, nor did he touch the deposit companies or the insured parties to confirm details of the contracts. The sum of multimillion-dollar renewal contracts exceeded the aggregate sum adapted nationwide for that season epoch. Additionally, the amounts of the renewal contracts were unusually bulky. Had Greenspan gone-by season understanding the perseverance, he would enjoy discovered this. Additionally, re-examinationing the changes in financial homogeneitys from year to year would enjoy fond some indication of accounting irregularities. For illustration, the current homogeneity of proceeds to liabilities went from 36 in 1985 to short than 1 in 1986 purport the audience had no money notwithstanding showing chronicles incomes. The 1986 claim to equity homogeneity was up 8600% from the foregoing year. These were not indicators of a normal matter and should enjoy alerted Greenspan to notability in the adjudicate not sort purified.
Even though Ernst and Whinney did not adequate their audit, had they done their due assiduity they never would enjoy true ZZZZ Best as a client. The audience administration had no experience; some managers and matter partners had ties to unembarrassed misdeed; and Minkow had a departed of forgery and bank abstraction. Additionally, once Minkow experienced to support Ernst and Whinney from investigateing its renewal plights and merely recognized it when the audience could stipulation the opportunity of the audit, Ernst and Whinney should enjoy unconcealed notability was inopportune. Additionally, Greenspan stated he was never touched by the devisee corroborator which is an audit requirement.
Wells, J.T., (2001). Irrational homogeneityns. Retrieved from https://www.journalofaccountancy.com/issues/2001/aug/irrationalratios.html
Gaines, S., (1988). In abstraction contingency, CPA practices on experiment. Retrieved from https://www.chicagotribune.com/news/ct-xpm-1988-01-31-8803260897-story.html
The designation that I chose talks environing a very new-fangled audit insufficiency in the audit of the Germany-based Wirecard AG, which was one of the biggest and fastest-growing European fintech. EY audited Wirecard for balance a decade and failed to get competent audit manifestation on the € 1.9 billion belonging to the audience that was reckoned to be held in duty accounts (Davies, 2020). The audience filed for closing in June 2020 behind confirming that the € 1.9 billion it had listed as proceeds probably didn’t pause.
After this issue, EY has faced current animadversion owing of its insufficiency to properly audit Wirecard’s accounts balance various years (Aaron, 2020). The accounting immovable was so sued in Germany by the audience’s investors, which alleged that EY failed to fulfill that the proceeds were improperly booked on the audience’s 2018 accounts. Owing of this situation, EY Chairman had to transmit a epistle to clients to interpret environing this insufficiency.
In my theory, the corroborators failed to appertinently appropinquation the reliability of the bank acceptance common during the audit. The audit cunning should enjoy considered the make of the acceptance requested, as well-mannered-mannered as the intended respondent and the sort of the instruction sort developed. Additionally, in standing involving speaking transactions or balances the corroborator should application a heightened rate of professional skepticism environing the respondent.
Aaron, Tony (2020, Sep 15). Corroborator EY Expresses ‘Regret’ Balance Failures Behind Wirecard Collapse. Bloomberg (Online) Retrieved from https://www.bloomberg.com/news/articles/2020-09-15...
In the designation, "WeWork: Corroborator EY didn’t alarm environing the risks", the writer points out that EY's client, WeWork, did not make-unconcealed material weaknesses in the audience's financial reporting inside control processes (McKenna, 2019). The designation interprets the open moment of WeWork's canceled IPO and the conflicts of attention delayin the relationships delay WeWork's CEO and the companies WeWork leases properties from.
EY did not discover those relationships to be risks during their audit risk duty procedures at WeWork. The relationships had frequented conflicts of attention owing WeWork executives had frequented financial benefit from the companies they leased the appertinentties from. Therefore, EY failed to descry abstraction in their audit of WeWork.
McKenna, Francine (2019). WeWork: Corroborator EY didn’t alarm environing the risks. Retrieved from: https://thedig.substack.com/p/wework-auditor-ey-didnt-warn-about