Question

analyze the key points that caused the Enron massive fraud. From your analysis, recommend one (1) way that the auditors could have taken to prevent or detect the fraud

Answer 1

Fighting fraud is an adversarial process. You are trying to prove that someone has done something wrong. No one is going to fight you harder than a person who may lose his or her liberty. If you don't have the stomach for it, find another job. This is not a profession for wimps.

But that doesn't mean you can't be nice. As a matter of fact, the best fraud examiners and investigators I've met are also the nicest. They smile a lot, even when staring down crooks. It completely disarms them

Auditors could have to detect the fraud :

While audits are not designed to root out every instance of fraud, auditors have a responsibility to detect material misstatements in the company's financial statements caused by either fraud or error. Accordingly, generally accepted auditing principles prescribe specific audit procedures to detect fraud that must be carried out during each audit. Knowing some of these procedures can help you better align resources for your company's audit.

Fraud Brainstorming Session

Under generally accepted auditing standards, audit engagement teams must hold a fraud brainstorming session at the beginning of the audit. This session, led by the partner in charge of the audit, is designed to provide a time for the audit team to consider how the company could commit fraud. Further, the brainstorming meeting is used to set a tone of professional skepticism in the audit. Often, a fraud specialist attends the meeting to provide insight into other frauds committed by similar companies or industries and help identify the client's risk factors.

• Journal Entry Testing - Because committing material financial statement fraud often requires adjustments to the company's financial records, auditors will test the company's journal entries for any signs of manipulation

• Accounting Estimates- Another likely place for fraud is in accounting estimates. Because accounting estimates are subjective, management may be able to influence accounting estimates to manipulate the financial statements.

• Significant Unusual Transactions- Recent revisions in generally accepted auditing principles require that auditors closely examine significant unusual transactions outside of a company's normal business operations