Question

What are some of the contributing factors of the failure of the audit in halliburton in 2005? and also, did they have audit or accounting failures and if so, please give examples. thank you

Answer 1

They were a series of accounting frauds done by halliburton which resulted in material misstatement of financial stement. All those accounting and auditing failures and manipulation is explained in the following points :-

1 . Week internal control = Internal controls relating to accounting system were very week as a result making it vulnerable to external as well as internal fraudulent acts and prone towards error.

2. Inflation of billing work = Halliburton adopted a manipulative accounting practice wherein it use to inflate the billing amount resulting in overbilling for services it performs when actually it has done that for lesser amount. Thus, leading to window dressing of it's revenue and profit amount.

On the part of auditing if proper due diligence of it's contract book has been done by reconciling the amount show as revenue through its bank account for services provided in cash and by obtaining proper confirmation from the parties to whom it provided services and simultaneously looking whether this amount is properly reflected in it's various returns filed with governmental authorities then this fraud may have been caught quite earlier.

3. Non disclosure of loss of lawsuit = It lost a major lawsuit in Texas court, still it's top Executive didn't informed this to any interested parties and kept saying that they are not aware of such verdict and there has been no adverse development in this regard.

As far as auditing is concerned correspondences with legal authorities may have helped in this situation.

4. Change in accounting practice = There has been a change in major accounting practice leading to favourable financial position of halliburton without any disclosure thus misleading investors about the financial position of the company.

As far as auditing is concerned when there is a major change in accounting practice then it's leads to change of amount with respect to that particular class of item or transaction and use of proper analytical procedure immediately catch such type of change.

Thus, there had been a series of audit and accounting failure involved in the case of halliburton which all contributed towards showing the financial position of the company to look stronger do that it can meet the expectation of shareholders by fraudulent means.