Implications of Fraud and Error Risks in the Enterprise Environment and Auditor's Work

Author:Emil Horomnea - Tanasa Florentin
Position:Professor, PhD, 'Alexandru Ioan Cuza' University, Faculty of Economics and Business Administration, Romania - PhD in progress, 'Alexandru Ioan Cuza' University, Faculty of Economics and Business Administration, Romania
Pages:505-511
SUMMARY

The objective of this study is to identify and analyze the main correlations and implications of fraud and error in the business environment and in the financial scandals occurred in the last decade. The approach envisages a synthesis and antithesis of the ideas found on this subject in the specialty literature, of the regulations issued by various international bodies. To achieve the established ... (see full summary)

 
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Performance and Risks in the European Economy
505
Implications of Fraud and Error
Risks in the Enterprise Environment and Auditor’s Work
Emil Horomnea
1
, Florentin-Emil Tanas
2
Abstract: The objective of this study is to identify and ana lyze the main correlations and implications of
fraud and error in the bus iness environment and in the financial scandals occurred in the last decade. The
approach envisages a synthesis and antithesis of the ideas found on this subject in the specialty literature, of
the regulations issued by vari ous international bodies. To achieve the established objectives, we used a
constructive methodology to identify criticism, presentations and developed a speech with view to a more
efficient and effective fraud and error risk management. The res ults of the study show that the major financial
scandals and hence the global economic crisis are based largely on fraudulent maneuvers of significant
proportions. By using "creative accounting" in fraud and err or, famous companies have managed to distort
reality for their performance and mark et position, misleading the users’ perception. This study is a theoretic al
having implications for a future empirical study.The study contributes to auditing literature diver sification in
the field of risk of fraud and error. An additional perspective is gained by addressing the financial crisis and
some famous bankruptcies by way of the financial auditors activity and the fraud and error risk.
Keywords: economic crisis; audit perspectives; toxic assets; financial statement; fraud
JEL Classification: M14; M41; M42; M48.
1 Introduction
The financial scandals that occurred in the last 100 years have slowly but surely contributed to a
depreciation of confidence in the competence and the responsibility of auditors’ activity. However, the
audit activity has never experienced such a strong impairment of confidence in the capabilities and the
professionalism of auditors, this decay being determined by the succession of bankruptcies and
financial scandals that have hit some of the biggest corporations in the global economic specific past
decade (Boa, 2009).
The bankruptcies of a series of large corporations that have occurred since 2001 (Enron, WorldCom,
Qwest Communications, Parmalat) and the current financial scandals (Merrill Lynch, Satyam,
Mardoff, Stanford Financial Group) strongly affected the corporate life bringing about a ri sk for
investors to lose confidence in the assurance of professional accountants on the image fidelity offered
by the financial statements of the audited companies. Such an example is the great financial scandal
generated by Enron bankruptcy, with really disastrous consequences for the audit specialists, a definite
evidence to this effect being the rapid dissolution of the audit company Arthur Andersen, member of
the "Big Five" Group.
The amplitude of these negative phenomena that rocked the economies of certain highly developed
countries, has generated more and more critics to the independence and competence of the external
auditors to have failed in implementing the necessary audit procedures so as to identify the warning
signals that could have prevented such events. On the other hand, there are more and more discussions
1
Professor, PhD, “Alexandru Ioan Cuza” University, Faculty of Economics and Business Administra tion, Romania, Address
22 Carol I Bld, Iasi
700505
, Romania, tel:+4 0232.201.601, e-mail: ft1709@yahoo.com.
2
PhD in progress, “Alexandru Ioan Cuza” University, Faculty of Economics and Business Administration, Romania, 22
Carol I Bld, Iasi
700505
, Romania, tel: +40762.687.643, Corresponding author: tanasa.florentinemil@yahoo.com.

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