PTL Club clear-The Harbinger of things to come?
1. What similar factors led to the demise of both Laventhol &Horwath, and Anderson? Both Laventhol and Horwath, and Arthur Anderson accepted clients that were risky just to keep their revenues up. L&H knew there were things wrong with PTL, especially since they were doing things that were hidden from the Board, like the payroll account book, which was secret. The Bakker’s would call the senior L&H partner to keep the books updated. Anderson and L&H allowed their clients to use aggressive accounting practices that were questionable. Anderson destroyed Enron’s documents because they knew an SEC investigation was imminent. L&H and Anderson’s main objective was increasing firm revenues in spite of audit quality, which ultimately led to the demise of both companies.
2. Do you believe that Anderson’s partners would have adopted a different management philosophy if they had recently studied the Laventhol and Horwath case? I don’t believe that Anderson’s partners would have adopted a different management philosophy if they studied the L&H case. Their main concern was increasing their firm’s revenues, with no regards to the cost. They were even involved in their audit clients accounting policies, allowing them to be aggressive. Anderson had many audit clients, and they were not new to the auditing world. Management knows right from wrong, and should have used better judgment before making these decisions.
3. Should audit reports be used to solicit investments, credit, or sales in a manner similar to Jim Bakker’s? How can a CPA firm prevent such behavior? Audit reports should not be used to solicit investments, credits or sales. The SEC states that the purpose of an audit is to “provide the public with additional assurance — beyond managements' own assertions — that a company's financial statements can be relied upon.” Bakker used the audit...