Enron on China's CPA industry Enlightenment

        Abstract from the Enron bankruptcy and Arthur Andersen audit failures raised on non-audit services are detrimental to the independence of the audit of the registration division to stArt to discuss what non-audit services, its production, and focused on providing audit services in the Certified Public Accountants When its independence. The Article is concluded that the necessary regulatory mechanism to ensure that the basic premise of auditor independence, non-audit services can improve audit quality will help firms to absorb talents, conservation of resources; is conducive to the CPA profession is in line with financial reporting users interests of the conclusions. Give us a lesson that we should encourage and guide the development of CPA Firms in China Management Consulting and other non-audit services to meet the WTO challenges and opportunities; should also strengthen supervision of non-audit services.
        Keywords: non-audit services to the independence of Arthur Andersen Enron
        Abstract Beginning with the bankruptcy of the Enron Corporation, and the auditing failure of the Andersen Accounting Firm, the following dissertation analyzes what none-auditing-service is, its emergence, and its influence on the traditional auditing service of the Certified Public Accountants. Following dissertation comes to the conclusion that under certain watch and control to guarantee the basic premise of the auditors 'independence, none-auditing-service can actually be helpful to the auditing service by increasing the auditing quantity, be beneficial to the accounting firms' absorption of elitist, and be helpful to save the economic resources. So none-auditing-service benefits the development of the accounting profession and matches the financial reports users' interest. This enlightens us to encourage and to guide the none-auditing-service in the accounting firms in our country for the coming challenge of being a member of WTO.
        Keywords: Enron Andersen none-auditing-service
          independence
        1, of the problem
        Recently, the United States' seventh-ranked Fortune '500 strong Enron bankruptcy case, not only seriously shaken the confidence of the U.S. stock market in the U.S. political arena has also caused a great uproar, and even has become a global concern. As Enron's auditor, the United States, one of the five major accounting firm Arthur Andersen accounting firm has also been accused lost their integrity, audit failure, to decline by Sheng, as the icebergs melt, it is well worth considering.
        Enron since its inception in 1985, has been engaged in related work in the energy sector, to the United States in 1999 has grown into the largest energy trader, and attract a large number of investments, between 1997 to 2000 in the New York-listed shares of Enron Corporation quadrupled. However, in October 2001, Enron shocked the entire Wall Street, it suddenly announced third-quarter losses reached 600 million U.S. dollars, three weeks later, Enron restated its 1997 financial statements for the year 2000 showed that the cumulative profits than had a decrease of 591 million U.S. dollars, the debt has increased by 638 million U.S. dollars. Explanation of its auditor, Arthur Andersen, said: This is because the Enron transaction in equity shares will be issued by the Company in exchange for the notes receivable, which notes receivable recorded on the company's books as assets, issuing shares were recorded as a shareholder's equity . And admitted that he did misjudgements, which encouraged the Enron accounting aspects of some of the illegal operations.
        As a result, the charges against Arthur Andersen, the independence of the issue has become one of the focuses. There are a lot of the media and organizations, declared: Arthur Andersen audit failure 'dereliction of duty' was because in the provision of audit services for Enron at the same time, it also provides a large number of non-audit services. He especially pointed out: In 2001, Arthur Andersen on the Enron audit fees are 25 million U.S. dollars, non-audit services fees and charges is 27 million U.S. dollars. As the non-audit services and audit services to an inevitable conflict of interest between, especially when non-audit fees than audit fees and charges, the independence of certified public accountants severely damaged, resulting in the audit failure.
        In the congressional hearing, Arthur Andersen CEO Berardino In response to these accusations and counter are described. He said that Enron's total assets of up to 65 billion U.S. dollars, with annual sales of more than 100 billion U.S. dollars, and has the world's largest business systems, for such a very complex multinational corporations, fees are generally commensurate with its size and complexity of the . Meanwhile, Arthur Andersen provided non-audit services is essential, and some that have traditionally provided by certified public accountants, or even only by the Certified Public Accountant, so there would not undermine the independence of the audit. In the Enron paid 27 million U.S. dollars of non-audit services, 350 million are tax services that accounting firms to provide universal service, there can be no conflict of interest; 3.2 million U.S. dollars is a new accounting system necessary to audit (of the system by another one 'five' design and installation); another four million U.S. dollars actually pay for Andersen Consulting's consulting fees, while Arthur Andersen was in August 2000 a formal split with Andersen Consulting; also There are several millions of dollars in services are also certified public accountants should be done. Comprehensive consideration of these factors, the audit and audit-related fees and charges accounted for more than 70%, while the genuine non-audit services than 13.3 million U.S. dollars, and each individual service charges are not more than 3 million U.S. dollars. Berardino convinced that the registration of accountants Arthur Andersen will not and should not be motivated to abandon the principle of non-audit services will not be because of the high-income fails to comply with the audit independence requirements.
        In this way, the outbreak of Enron again in the United States Securities and Exchange Commission to reconsider the total ban on such non-audit services, has once again sparked right on the firm to provide non-audit services to audit clients is of great concern to undermine its independence. In this paper, it also raises the discussion of non-audit services.
        2, non-audit services
        Because there is no clear definition of non-audit services, the author according to their specific scope of business test is defined as follows: non-audit services relative to audit services, is that the accounting firms to provide customers with a fee, such as tax consulting, management consulting, consultancy and even a variety of services such as technical advice.
        With the advent of the information, knowledge of the rise, and economic activities, the trend of internationalization and diversification increased, accounting firms to provide customers with the rapid development of non-audit services has become a world trend. According to 'International briefing' statistics, in 1993, the accounting profession as a whole and 31% of the revenue comes from non-audit consulting services, but by 2000 non-audit service revenue accounts for more than 50% of total revenue, more than accounting and auditing services.
        I think that non-audit services is to promote the emergence and development of CPA-round development of the major factors, it is the result of economic globalization is a highly competitive market, accounting services, the result is demand-driven result of the market itself, but also the market mechanism rational allocation of resources results. The globalization of the economy to promote the globalization of the world, the development of desalination national boundaries, information technology completely changed the enterprise's organizational structure, modes of production and trading patterns. First of all, the emergence of non-audit services from the business needs: With the continuous expansion of enterprise scale, enterprise information systems in the financial information is more complex, and no longer exist in isolation, but rather with the management, management information intertwined. Enterprises can seek advice from a registered professional accountants, such as how to make the computerized accounting system is more suited to a company's business, how to make the disclosure of financial information and other accounting standards more in line with the provisions of, and even financial management issues. But also for businesses, and more welcome the accounting firm to provide non-audit services. Because, as the credibility of the audit service providers, as compared with other service providers, accounting firms are more likely to trade secrets for the enterprise conservative, but also well-known enterprise management, can bring better service results; secondly, from the Certified Public Accountant: They passed audit services to the enterprise's internal structure, management model, operational risk, financial condition, etc. to a considerable understanding; but also equipped to provide management consulting services such as professional competence. If we accept the business advisory services commission, the provision of appropriate and insightful consulting services is not only possible, but also in saving a large extent, the economic resources; again, from the accounting firm's needs: With the accounting firm increase in competition for business has become increasingly fierce. If a firm has an extensive range of services and areas, there is more solid and broader financial base: If the business is more diversified, the more financial security, it is better able to bear the losses caused by loss of a client without due to a fear of losing customers to its accounting policies unreasonable compromise, and helps to maintain firm's independence.
        So, non-audit services to audit independence will produce what they going to do? July 2000 North Carolina State University, Accounting Department on the provision of non-audit services Certified Public Accountants audit of whether the damage to the independence of this issue an independent special investigation. The survey compared the two different cases, the audit report uses the people of Certified Public Accountants independence, objectivity and impartiality of view. One is simply to provide audit services Certified Public Accountants, and the other is the simultaneous provision of audit and non-audit services. The results showed that the use of non-audit services to people's views on the report not only found no adverse effects, but have a positive impact. In other words, CPA to provide non-audit services can enhance the reporting for reporting on the use of the trust. These findings support the independence of non-audit services to strengthen the audit point of view, but also enhanced the CPAs the ability to resist client management pressure.
        Of course, I also agree that certified public accountants in the course of their practice is indeed likely to be detached can not consciously maintain independence, particularly when the accounting firm and the customer relationship when you are too close. Therefore, we must strengthen the necessary regulatory mechanisms, strong regulation will be to ensure the basic conditions for the independence of the audit. In each accounting firm has internal control mechanisms, including the code of ethics, quality control guidelines for constraints, and follow-up, in particular the integrity of education; the whole industry of Certified Public Accountants and other self-regulatory organizations; as well as government regulatory agencies; as well as through the legal form of liability to achieve such external regulation and criminal penalties for civil compensation system can enhance the independence of audit.
        Although Arthur Andersen audit of the original documents destroyed a lot of data, loss of the independence of the audit is a fact, when Enron, but if simply blame it on non-audit services, would be overlooked because of appearances in real terms. It should be noted: Enron's employees in more than 100 came from Arthur Andersen, including the Chief Financial Officer and other senior teachers, and staff. Obviously, this level is the close relationship the real crux of the matter. It is reported that Arthur Andersen had been Enron's chief financial officer of staff Fastow in the Enron case is a very key figure, a lot of illegal operations by his direct control and make arrangements for the. Therefore, the loss of the independence of the audit can not simply be attributed with the accounting firm of non-audit services. On the other hand, non-audit services to charge higher fees than audit fees is actually relatively common phenomenon: In addition to Arthur Andersen and Enron charged to non-audit service fees than audit fees from 2001 KPMG consulting fees charged to the Motorola is 62.3 million U.S. dollars , the audit fee is 3.9 million U.S. dollars; Ernst & Young to the advisory fees charged by Sprint long-distance is 63.9 million U.S. dollars, the audit fee is 2.5 million U.S. dollars; PricewaterhouseCoopers charge AT