JEFMS Journal

ABSTRACT:

This is a case study of Aegean Marine Petroleum Network, Inc. (Aegean). Aegean’s founder and former CEO was the mastermind of several fraud schemes which pilfered $300 million from the company. During 2006-2018, Aegean’s Big 4 auditors, Deloitte and Price Waterhouse, failed to detect the fraud and issued clean, unqualified opinions year after year. After the fraud was discovered by Aegean’s audit committee in 2018, a group of Aegean’s stockholders filed a securities fraud lawsuit in New York City against the former CEO and the two auditors, and it will come to trial in the near future. U.S. Public Company Accounting Oversight Board (PCAOB) standards require an auditor to be professionally skeptical during an audit. He must maintain a questioning mind and make a critical objective assessment of audit evidence. In the Aegean case, the court held if the auditors had been more professionally skeptical, they may have been able to discover the massive fraud. PCAOB standards also require an auditor to search for related party transactions and to disclose them. In the Aegean case, the court noted it is inexcusable that the auditors were not aware that the former CEO owned Oil Tank, Inc., a firm which siphoned off millions of dollars from Aegean during the oil storage facility construction project. If they had been aware of this relationship, they might have been able to uncover the massive fraud. PCAOB standards also require an auditor to search for fraud. In the Aegean case, the former CEO engaged in several fraud schemes, yet the auditors were ignorant of them and issued unqualified audit opinions. This led the court to conclude that the auditors exhibited “willful blindness.”

KEYWORDS:

auditor, duty, detect, fraud, related, party, professional, skepticism

REFERENCES:

1) In re Aegean Marine Petroleum Network, Inc., 2021 U.S. Dist. LEXIS 59803 (S.D.N.Y. March 29, 2021).

2) Baah, George K., (2018). What Auditors Think About Audit Quality—A New Perspective on an Old Issue, Pittsburg: 30:4 Journal of Managerial Issues 483-504.

3) Elbayoumi, Ahmed F., (2019). Development of Accounting and Auditing in Egypt: Origin, Growth, Practice and Influential Factors, Nashville: 53:2 The Journal of Developing Areas 205-220.

4) Feleaga, Liliana, (2016). Disclosure of Related Party Transactions and Information Regarding Transfer Pricing by Companies Listed on Bucharest Stock Exchange, Bucharest: 15:4 Accounting and Management Information Systems 185.

5) Kang, Pyung Kyung, (2020). Client’s Bargaining Power and Audit Negotiation over Earnings: Evidence from Audit Processes in a Business Group’s Environment, Dordrecht: 29:6 Group Decision and Negotiation 1207-1238.

6) In re Longwei Petroleum Inv. Holding Ltd. Sec. Litig., No. 13 Civ. 214, 2014 U.S. Dist. LEXIS 9689 (S.D.N.Y. Jan. 27, 2014).

7) Mahenthiran, Sakthi, (2020). The Effect of Board Links, Audit Partner Tenure, and Related Party Transactions on Misstatements: Evidence from Chile, Basel: 8:4 International Journal of Financial Studies 78.

8) Miculescu, Marius-Nicolae, (2018). Audit of Trade Receivables, Timisoara: 53:13 Quaestus 68.

9) PCAOB, (2020). Auditing Standard 1015: Due Professional Care in the Performance of Work.

10) PCAOB, (2020). Auditing Standard 2401: Consideration of Fraud in a Financial Statement Audit.

11) PCAOB, (2020). Auditing Standard 2410: Related Parties.

12) Sarbanes-Oxley Act of 2002, Pub. Law 107-204, 116 Stat. 745, enacted July 30, 2002.

13) Vann, Carol E., (2018). Big 4 Auditors, Corporate Governance, and Earnings Management under Principles- and Rules-Based Reporting Regimes: Cross-Country Empirical Evidence, Pittsburg: 30:3 Journal of Managerial Issues 279.

14) Yilmaz, Ilker, (2018). Corporate Governance and Financial Performance: Case for Oman Companies, Yalova, Turkey: 4:4 Journal of Accounting, Finance and Auditing Studies 84-106.