Ptl Case Study

Topics: Audit, Auditing, Jim Bakker Pages: 4 (1377 words) Published: October 19, 2012
Case study
PTL Club-The Harbinger of Things to Come?

1) To see how similar the cause of collapse of both Laventhol & Horwath and Andersen, let’s examine these two cases from two perspectives. a. From the clients’ side
The last straw which led to the demise of these two CPA firm were PTL club to L&H and Enron to Anderson. PTL Club had a very weak internal control. As it is pointed out in the case, whenever Jim Bakker needed money, he could just simply make a board member introduce a resolution for a bonus. Auditors could not find necessary documents to support expenses and revenue. Compensation was excessive far beyond the regulation of IRS. (Louwers, 867-872) Enron was engaged in aggressive accounting practices. It took advantage of the deregulation to inflate energy price. It utilized off-balance sheet financing vehicle to make its financial statement look far better than it was supposed to be. Both PTL Club and Enron were very risky clients. (Shirur, 4) b) From the CPA firms’ side

L&H and Anderson knew that they were walking on the tightrope. However, for profit’s sake, they chose to close their eyes and took the risk. L&H was surrounded by allegations due to their aggressive approaches on their audit work. As for Anderson, it took in 17 out of 58 L&H’s clients after L&H’s fall, which was close to double of all the clients being taken in by any other Big Six (Read, 6). This behavior was a strong indication that L&H and Anderson shared the same philosophy which was to earn the most out of the hole of regulation and law. 2) No. According to the Analysis of L&H’s Clients by Subsequent Auditor, Anderson took in the most numbers off clients of L&H, which is 17 out of 107 among 33 CPA firms. L&H and Anderson had very similar management philosophy. They pushed to get the most. It is the result of market economics. Hence, government should play a significant role in putting regulation and law in place to prevent such...

References: "Auditors’ Responsibilities Formalized Under SAS 109." Auditors’ Responsibilities Formalized Under SAS 109. N.p., n.d. Web. 13 Oct. 2012. <
"AU Section 560." Public Company Accounting Oversight Board. N.p., n.d. Web. 13 Oct. 2012. <>.
"ET Section 101 - Independence ." ET Section 101. N.p., n.d. Web. 13 Oct. 2012. <
Louwers, Timothy J. Auditing & Assurance Services. New York: McGraw-Hill Irwin, 2011. Print.
Reed, B. , Trombley, M. , & Dhaliwal, D. (2000). Demand for audit quality: The case of laventhol and horwath 's auditees. Journal of Accounting, Auditing & Finance, 15(2), 183-198.
Shirur, S. (2011). Tunneling vs agency effect: A case study of enron and satyam. Vikalpa: The Journal for Decision Makers, 36(3), 9-26.
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