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    UTS Audit II-1

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    Nafis
    The document provides details about an midterm audit test case focusing on the Enron scandal, where Enron used improper accounting practices like mark-to-market accounting to hide losses and move troubled assets to special purpose entities. As issues came to light, Enron's stock price plummeted from $90 to less than $1 and the company declared bankruptcy, also negatively impacting Arthur Andersen. The test further examines analytical procedures to evaluate the allowance for doubtful accounts for a company that has grown sales but also accounts receivable.

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    UTS Audit II-1

    Uploaded by

    Nafis
    112 views3 pages
    The document provides details about an midterm audit test case focusing on the Enron scandal, where Enron used improper accounting practices like mark-to-market accounting to hide losses and move troubled assets to special purpose entities. As issues came to light, Enron's stock price plummeted from $90 to less than $1 and the company declared bankruptcy, also negatively impacting Arthur Andersen. The test further examines analytical procedures to evaluate the allowance for doubtful accounts for a company that has grown sales but also accounts receivable.

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    The document provides details about an midterm audit test case focusing on the Enron scandal, where Enron used improper accounting practices like mark-to-market accounting to hide losses and move troubled assets to special purpose entities. As issues came to light, Enron's stock price plummeted from $90 to less than $1 and the company declared bankruptcy, also negatively impacting Arthur Andersen. The test further examines analytical procedures to evaluate the allowance for doubtful accounts for a company that has grown sales but also accounts receivable.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    112 views3 pages

    UTS Audit II-1

    Uploaded by

    Nafis
    The document provides details about an midterm audit test case focusing on the Enron scandal, where Enron used improper accounting practices like mark-to-market accounting to hide losses and move troubled assets to special purpose entities. As issues came to light, Enron's stock price plummeted from $90 to less than $1 and the company declared bankruptcy, also negatively impacting Arthur Andersen. The test further examines analytical procedures to evaluate the allowance for doubtful accounts for a company that has grown sales but also accounts receivable.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    KEMENTRIAN RISET, TEKNOLOGI DAN PENDIDIKAN TINGGI

    UNIVERSITAS NEGERI MALANG (UM)


    FAKULTAS EKONOMI (FE)
    Jalan Semarang 5, Malang 65145
    Telepon: 0341-551312 Pes. 275, Faximile: 0341-552888
    Laman: www.um.ac.id

    MIDTERM TEST
    AUDIT II
    1x60 minutes

    A. CASE

    Enron Scamdal

    Enron scandal, series of events that resulted in the bankruptcy of the U.S. energy, commodities,
    and services company Enron Corporation and the dissolution of Arthur Andersen LLP, which
    had been one of the largest auditing and accounting companies in the world. The collapse of
    Enron, which held more than $60 billion in assets, involved one of the biggest bankruptcy filings
    in the history of the United States, and it generated much debate as well as legislation designed
    to improve accounting standards and practices, with long-lasting repercussions in the financial
    world.

    As the boom years came to an end and as Enron faced increased competition in the energy-
    trading business, the company’s profits shrank rapidly. Under pressure from shareholders,
    company executives began to rely on dubious accounting practices, including a technique known
    as “mark-to-market accounting,” to hide the troubles. Mark-to-market accounting allowed the
    company to write unrealized future gains from some trading contracts into current income
    statements, thus giving the illusion of higher current profits. Furthermore, the troubled operations
    of the company were transferred to so-called special purpose entities (SPEs), which are
    essentially limited partnerships created with outside parties. Although many companies
    distributed assets to SPEs, Enron abused the practice by using SPEs as dump sites for its troubled
    assets. Transferring those assets to SPEs meant that they were kept off Enron’s books, making its
    losses look less severe than they really were. Ironically, some of those SPEs were run by Fastow
    (owner) himself. Throughout these years, Arthur Andersen served not only as Enron’s auditor
    but also as a consultant for the company.

    The severity of the situation began to become apparent in mid-2001 as a number of analysts
    began to dig into the details of Enron’s publicly released financial statements. An internal
    investigation was initiated following a memorandum from a company vice president, and soon
    the Securities and Exchange Commission (SEC) was investigating the transactions between
    Enron and Fastow’s SPEs.As the details of the accounting frauds emerged, the stock price of the
    company plummeted from a high of $90 per share in mid-2000 to less than $1 by the end of
    November 2001, taking with it the value of Enron employees’ pensions, which were mainly tied
    to the company stock. Lay and Skilling resigned, and Fastow was fired two days after the SEC
    investigation started.
    KEMENTRIAN RISET, TEKNOLOGI DAN PENDIDIKAN TINGGI
    UNIVERSITAS NEGERI MALANG (UM)
    FAKULTAS EKONOMI (FE)
    Jalan Semarang 5, Malang 65145
    Telepon: 0341-551312 Pes. 275, Faximile: 0341-552888
    Laman: www.um.ac.id

    Question

    1. As an auditor what kind of audit procedure that you did if you faced the same problem with
    Andersen? (mention 2 answers)

    2. What kind of audit proof that you have to prove the Enrons Fraud? (mention 2 answers)
    B. Financial Statement

    The Albring Company sells electronics equipment, and has grown rapidly in the last year
    by adding new customers. The audit partner has asked you to evaluate the allowance for
    doubtful accounts at December 31, 2011. Comparative information on sales and accounts
    receivable.
    Year Ended Year Ended
    12/31/11 12/31/10
    Sales $ 13,000,000 $ 11,000,000
    Accounts Receivable 1,500,000 1,000,000
    Allowance for doubtful accounts 90,000 75,000
    Bad debt charge-offs 110,000 100,000

    Accounts Receivable:
    0-30 days $ 800,000 $ 600,000
    30-60 days 250,000 160,000
    60-90 days 170,000 105,000
    Over 90 days 110,000 60,000

    TOTAL $ x,xxx,xxx $ x,xxx,xxx

    Question

    1. How Much xxxx?

    2. Perform analytical procedures to evaluate whether the allowance is fairly stated at


    December 2013? (Amount of Materiality is $20.000)
    KEMENTRIAN RISET, TEKNOLOGI DAN PENDIDIKAN TINGGI
    UNIVERSITAS NEGERI MALANG (UM)
    FAKULTAS EKONOMI (FE)
    Jalan Semarang 5, Malang 65145
    Telepon: 0341-551312 Pes. 275, Faximile: 0341-552888
    Laman: www.um.ac.id

    C.

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