As auditors of Enron, Andersen saw their role as that of providing an ‘integrated audit’ combining its outside audit role with extensive internal auditing and consulting services. However, the accounting and corporate governance experts testifying before the US Senate Committee on Governmental Affairs investigation of the role of the Enron directors condemned the very concept of an integrated audit: ‘… not only for diluting the outside auditor’s independence, but also for reducing the effectiveness of an outside audit by allowing the auditor to audit its own work at the company. Mr Sutton called it a “terrible idea” while Mr Campbell called it a “horrible practice” and I do not think it should be permitted.’ 48 Another specific example where the intrusion of NAS impaired the quality of audit can be seen in Ernst & Young’s less-than-successful attempt to audit ERF (a UK truck manufacturer) – which resulted subsequently in extensive litigation and an admission by Ernst & Young of a number of counts of negligence (see Gwilliam 2010). One aspect of the case was that the company accountant had for some years being falsifying the VAT returns so as to obtain repayments from the then Customs and Excise. Ernst & Young did not notice this in the course of their audits for the relevant periods and, indeed, during the course of the 1998 audit Ernst & Young had introduced to ERF two members of its firm with ‘expertise’ in VAT, apparently for the purpose of bringing to ERF’s attention the scope of other services provided by Ernst & Young to their clients. 49 Although these personnel became aware of the pattern of reclaimed VAT, it did not appear to strike them as particularly unusual. More importantly, the audit team carried out little or no work on the VAT figure as they believed that it had been covered for audit purposes by the VAT specialists. Furthermore, in the following year they appear to have been under the impression that the specialists were continuing to be associated with ERF’s VAT computations – although they were not – and again carried out no specific work on the VAT returns. More recently, albeit with less concrete examples, concern has been expressed about the role of the large accounting firms in the mark-to-market practices which played a part in the run-up to the global financial issues which came to the fore in 2008 and 2009. It is not clear the extent to which, if any, audit firms or their consulting arms participated in the construction of the mark-to- market modelling but there are possible resonances with the Enron saga – where the involvement of Andersen in putting together the variety of accounting practices used by their client made it very difficult for them to come to the appropriate audit opinion.
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