Enron Break Analysis

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Asking the Right Questions?
Lecture 12

Learning Objectives
• Ask Why, Asshole? • Identify the types of threats professional accountants encounter and identify ways of minimising these. • Outline the disciplinary procedures for accountants. • Discuss the role of ethics in a global environment

Enron: The Smartest Guys in the Room?

Threats to Accountants
• Code of Ethical Conduct • Compliance with these principles may be undermined by the following 5 threats from APES 110: • Self-Interest Threat ▫ may occur as a result of the financial or other interests of a member or of an immediate or close family member.  A direct material interest in an audit client.  A loan from a client.

• Self-Review Threat

▫ may occur when a previous judgment needs to be reevaluated by the member responsible for that judgment.  An audit team member having recently been a director of the audit client.

Threats to Accountants
• Advocacy Threat
▫ may occur when a member promotes a position or opinion to the point that subsequent objectivity may be compromised.  Dealing in or promoting shares in the audit client.

• Familiarity Threat
▫ may occur when, because of a close relationship, a member becomes too sympathetic to the interests of others.  An audit team member has a family member who is a director of the audit client.  Acceptance of a gift or preferential treatment.

• Intimidation Threat
▫ may occur when a member may be deterred from acting objectively by threats, actual or perceived.  Threat of replacement over a disagreement with the application of an accounting principle.  A dominant personality attempting to influence the decision making process, such as the awarding of contracts

Professional protection against threats
• Safeguards created by the profession, legislative acts and/or regulation ▫ Greater ongoing ethical education in the profession. ▫ Example of Corporate Governance is CLERP 9, which is similar to Sarbanes-Oxley Act (U.S) and...
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