This thesis aims to reveal arguments about the recent audit practices following financial crisis which began from 2008. It is well known that a large number of financial companies, such as Lehman Brothers and non-financial firms such as Enron had bankrupted, soon after receiving a full audit opinion. In addition, auditors charged large sums of money as audit and non-audit services fees. These events led to investigations on the credibility of external auditors, auditor‟s independence, relevance and quality of audit work and the use of economic incentives for good audit works. The thesis begins by discussing why audits are seen as culprits of seeking self interest, especially since the market is dominated by the 'Big Four' audit firms, PwC, KPMG, Deloitte, Ernst and Young. Secondly, the thesis discovers through examining the criticism related to the independence of audits. The challenges facing auditors in the present business environment is also discussed before giving recommendations on how auditors' importance can be developed. It is inferred that auditors did what they should do, and out of all these, the financial crisis is still happening. Audit should present subjective and critical business insights into the audited entities. The common goal of improving auditors' contribution to prudential regulation and the importance of auditors to the market will be achieved through collaboration with key stakeholders in the market.

In recent years, there is increasing intellectual recognition that modern states have intensified their surveillance and regulation in most aspects of social being. In our everyday life, we are exposed to so many processes of control and new laws that one can almost forget what it is legal and what is illegal. For instance, having a driving license, there is almost every month a new regulation such as equipments of first-aid kit, a classification of speed measurement etc. Of course, these regulations are formed in order to reduce the number of traffic accidents that are incurred, beside carelessness of drives, by new technologies of automobile industry. However, we need to be aware of quantity of all new regulations that directly or indirectly influence our lives. That is probably why so many social researches have focused on examination of mutual connection of technical progress and its potential risk to mechanisms of governance. Concepts such as risk management and audit have become very fashionable and regulatory authority has converted into an object of interest in many different domains of society. The new information structures, which have been developed in industrial capitalism, have resulted that the methods of control had to be altered. Nowadays, business companies are requested more to make their process of production and their financial management public, which is linked to a license acquisition and authorization arrangement that surely has substantial effect on profitability of the organization. The auditing profession has been severally criticized after large companies like Enron, CIT Group, General Motors have suffered bankruptcy. The scrutiny has certainly caused a stir in the world of business, as a result, the pressure has been increasing in the audit profession to evolve and transform what would be of benefit to business society. In this thesis we discuss these criticisms of the audit profession and response to these allegations. The business ethics and compliance are inevitable aspects for maintaining standard of corporate governance. Financial frauds in corporate undermine market confidence, making shareholders less confident. In this case, the role of external auditors is very significant. In a paper written by ACCA; “auditor‟s primary responsibility is to form an opinion whether the financial statements give a true and fair view of enterprise”1.

e. which means strict measures to be taken by the APB to enhance auditor independence. In fact. impairing the independence and objectivity of the auditor. transparency and the expectations gap. in general. Ernst and Young. decline in consumer wealth. This paper aims to explain the role of auditors in the economy and how they play an important role to mitigate the financial crisis. some economists have tried to pinpoint the role of auditors. one can say that financial auditors should be more involved in the prevention process. if no auditors had been there. The main reason for this review is that the UK market is dominated by "big four" firms audit. However. The collapse of the housing market also had a significant role that lead to the failure of key businesses. it will discuss the role of auditors. and comparing it with the role of auditors in financial collapses of major corporations that have had great impact worldwide and the most recent financial crisis of 2008 after Lehman Brothers and other current cases and trends of auditors. During the last decades. i. companies have been providing services other than audit. Independence and objectivity are important principles for workplace audit. PwC. Deloitte. Many economists have criticized the role of accountants in the financial crisis. More specifically. using the relevant literature. the financial crisis would have even worse scenario. This raises legitimate concern with respect to innovation and development of the theory and practice of auditing.The recent financial crisis which began from 2007 is known to be the worst financial crisis since the Great Depression of the 1930s.2 Some economists say that the lack of transparency in the financial statements of companies gave birth to the financial crisis. non-audit services with rates generally higher than audit fees. . Many companies and banks collapsed or nearly are collapsing because of weak financial audits. discussing areas such as the importance of auditors and their independence. This is done by observing the debate over audit fees paid to audit firms and the diversification of accounting firms in providing non-audit services to their clients. The thesis is structured in a way that. KPMG. and commitments by the government through tax policies. especially for investor‟s confidence. A lack of liquidity in the banking system of the United States is a significant cause.

For this reason. or withdraw from auditing the company. auditors have to deal with daunting tasks especially those related to risk estimates which are more uncertain and unstable resulting in auditor's responsibility significantly being increased and their credibility being called into question. The auditor has two alternatives: either to give a qualified or unqualified opinion. businesses and government budgets. International Standards on Auditing and to identify distortions in the financial statements. this is by having reasonable assurance that the materiality of misstatements in financial statements was observed or not. Management is responsible for the preparation and presentation of company‟s financial statements in accordance with International Accounting Standards and provide guidance on the prevention and detection of fraud and error in the organization and ensure that the internal control system is established and is functioning properly . their aim and goal is to gather and evaluate audit evidence to form an opinion on the company‟s financial statements. Financial statements are prepared and presented to reflect its heritage companies.BACKGROUND When auditors begin planning their work. the auditors during this procedure should carefully consider the risk of material misstatement in the financial statements due to fraud or error.e.3 Auditors must plan their audits in such a way so as to gain reasonable level of certainty about the existence or non-existence of material misstatements in the company‟s financial statements due to fraud and error.. . The auditor should comply with auditing standards i.4 The world economy was largely affected by the economic downturn and financial crisis affecting financial institutions.

Special Investigation Testing the internal controls procedures. Company Assets being safeguarded Timelines of reporting . Review of the accuracy and reliability of the accounting records. GENERAL PURPOSE      Review adequacy of risk management procedures and their effectiveness Review adequacy of risk assessment methodologies.PURPOSE OF STUDY The purpose of the study is to assess auditor‟s role in financial crisis by examining into failed organizations or organizations that were bailed out by government intervention as well as to judge auditors‟ fulfillment of their responsibilities. and their effectiveness Internal Control System‟s adequacy and effectiveness examination and evaluation. Review of the accuracy and reliability of the financial reports. SPECIFIC PURPOSE      Operations of the banks being improved.

Internal audit function should provide range of coverage of the organization's operations and the internal auditor allowed access to such records and company assets for the proper performance of its responsibilities. JUSTIFICATION STATEMENT: Auditing is important for mitigating the effects of the financial crisis. Mortgage debt only has abnormally large loss rates in current period. The data for research is obtained from online research articles. JUSTIFY: Auditors use different audit techniques and procedures to reduce the organizations losses and mitigating the effects of the financial crisis. the real problem was the amplification process that decimated everything. . suggesting that while mortgage crisis may have begun financial crisis. SIGNIFICANCE The thesis is qualitative research. Financial crisis started with mortgages but affected all financial sectors in a similar way. Assessment of objectively and adequacy of internal control contribute to the economic and effective use of resources. It does not relate to any specific Organization and Company‟s research.SCOPE The scope of this thesis is to examine how internal audit is an independent appraisal function established by the management for the review of the internal control system as a service to the organization.

and subdivides and delegates roles. ASSUMPTIONS HYPOTHESES OF THE STUDY: Following are the hypothesis of the study. He may be an independent auditor unaffiliated with the substitution audited or elected public official. ORGANIZATION A social unit of people systematically structured and managed to meet the need or to pursue collective goals. . Organizations are open systems as they affect and are affected by the environment beyond their borders.  Hypothesis : 1 H1: Negative relationship exists between Audit appraisal function and Financial Crisis. in which investors sell assets or withdraw money from savings accounts fearing the value of these assets will fall if they are at a financial institution. All organizations have a management structure which defines relationships between functions and positions. FINANCIAL CRISIS A financial crisis is often associated with panic or run on the banks. responsibilities. and authority to carry out certain tasks.DEFINITION OF KEY TERMS AUDIT Objective examination and evaluation of company‟s financial statement.  Hypothesis : 2 H2: Relationship between External Auditor and Organization could either be positive or negative. AUDITOR Auditor is a person whose job is to carefully check the accuracy of business records.

this is by obtaining reasonable assurance that the materiality of misstatements was observed or not. Financial Statements are disclosed by the publicly listed companies for use of investors and other external stakeholders. Lehman made Repo 105 transactions as sales for accounting purposes”. Management is responsible for the preparation and presentation of financial statements in accordance with International Accounting Standards to prevent and detect fraud and/or error in the organization as well as ensuring that the proper function of internal control system. Financial statements are prepared and presented by management to give true and fair view of the organization. Auditors‟ silence and negligence was criticized as one of the major reason behind financial crisis of 2008.3 Auditors plan their audits so as to obtain a suitable level of certainty on the existence or nonexistence of material misstatement in the financial statements as a result of fraud and error. tally historical accounting record with financial statements. during this exercise auditors should carefully consider the risk of material misstatement in financial statements of the company resulting from fraud or error.CHAPTER 2 LITERATURE REVIEW Auditors are plan their work to gather and assess audit evidence so as to form an opinion on the financial statements. or to leave from carrying on the audit process. verify whether organization followed proper legal regulations for disclosing financial report and encourage or assist managers and other internal stakeholders in developing or improving one or more of an organization‟s performance management systems.4 Verifying financial and accounting information given by an organization is important part of audit process. reliability and transparency before being published.5 Financial crisis of 2008 revealed many issues and negligence of organizations and the regulatory bodies. The collapse of Lehman Brothers caused massive shock to the US economy.6 . These financial statements are verified by auditors for their accuracy. Auditors must verify that proper accounting records are maintained. The auditor must comply with International Standards on Auditing and should detect any errors in the financial statements. The auditor has two alternatives: either to give a qualified or non-qualified opinion. „Repo 105‟ used by US Bank misled the entire market. “Unlike typical repo transactions.

hence misleading the public and investors and thus causing the crisis.The banks during the financial crisis failed to identify or to take necessary steps in reducing the liquidity risks and hid their poor conditions by disclosing false financial statements. In turn that necessitates consideration of both the current and the possible future circumstances of the business and the environment in which it operates” (Auditing Practices Board. They knew that the government would bail these firms out with tax payers‟ money. this auditing firm was charged against professional negligence by regulatory bodies of US. Lehman Brothers received an unqualified audit opinion on its financial statements. against ISA 570. yet on the other hand those banks were on the verge of collapse is open to conjecture. by signing off audit reports of deteriorating firms. In case of Lehman Brother.8). Deloitte. KPMG. “auditor‟s procedures necessarily involve a consideration of the entity‟s ability to continue in operational existence for the foreseeable future. This is the main reason the critics believe that auditors act in their own interests with standards and issues regulatory issues. On January 28th 2008. However. It is also argued that APB does not consider small auditing firms when dealing with IAS as well as in other important audit issues.7 This silence of the auditing firms encouraged the companies to take unnecessary risks through various complex financial instruments such as Repo 105.9 International Standards on Auditing states. The Auditing Practice Board (APB) is board that sets standards on the applicability of the IAS in the UK but has a number of its members that are at present or formerly associated with one of the Big 4. Nonetheless. Thus. External auditors play a very important role as “The external auditors‟ main responsibility is to form an opinion on whether the company‟s financial statements show a true and fair view”.8 The audit profession is criticized of seeking self interest. Argument for self interest in the auditing profession is when directors are accused of misusing the going concern concept. in the dawn of August 2008 the company . p. The main reason for this criticism is that the UK market is dominated by the „Big 4‟ audit firms. the manner in which auditors constructed audits in their interest that some of the major banks were a going concern. Going concern concept requires that financial statements of the company to be prepared on the basis that the company will continue to be in operational existence for the foreseeable future. Ernst and Young. 2004a. Ernst & Young were the auditors of Lehman‟s accounting information and they helped the bank to hide $50bn debt for the market. together with a green light on the health of its quarterly accounts on July 10th. PwC. 2008.

the communication between board members. auditors failed to include a . The Ethical Standards required auditors to carefully analyze threats to their independence (this includes the provision of non-audit services) and to take measures necessary for safeguarding their independence. On January 28th 2008. which led to the proposition by the Government to revise the classification in auditing regulations. auditors and audit committees. by the 10th of March the company was all over the news channel for its financial problems and it was sold to JP Morgan. Issues such as the relationship between the auditor and their clients. received an unqualified audit opinion. In the report. However.12 Transparency is also major issue in the auditing profession. Bear Stearns. where the large picture that shareholders want to see is lost in a sea of detail and regulatory disclosures”. one of the largest investment banks in United States. Although financial statements are published on a regular basis it is not the whole story. in order to comply with the Ethical Standards.was struck in severe financial problems and was forced to file for bankruptcy on September 14th. The UK Government also altered 2008 regulations so as to compel companies to disclosure of fees for non-audit services to associated parties. The House of Commons Treasury is “… perturbed that the process results in “tunnel vision”.10 The 2008 regulations were crafted to work in parallel with the Auditing Practices Board‟s (APB‟s) Ethical Standards to ensure that auditors maintain their independence. the review by APB was completed. On 17 December 2010. and whether the auditors exercise their proper rights to be independent and objective by carrying out adequate research and tests on the financial statements are not fully communicated. the auditor is required to refuse to offer some non-audit services or even to turn down the audit appointment. APB‟s Ethical Standards had provision for disclosure of important services of non-audit services to the audit committee. 2008. The House of Commons Treasury Select Committee in its report “The Banking Crisis: Reforming Corporate Governance and Pay in the City added recommendations to the review raising concerns about the fees paid to auditors by clients that they audit for non-audit services provided at the eve of the financial crisis. This means that in some cases.11 A report by the House of Commons Treasury‟s titled “Banking Crisis: Reforming Corporate Governance and Pay in the City” questions the role of auditort. As research of the collapse of Enron Corporation.

This claim however cannot be proven when looking at what the current financial crisis has taught us.16 The financial crisis has led to some old and new questions regarding auditing practices.15 This discussion leads us to the controversial topic of the „expectations gap‟. carried an unqualified audit . From the crisis. This view is also shared by Professor Michael Power of the London School of Economics and Jonathan Hayward of Independent Audit. In 2006. argue that their role is not to detect fraud but to give a „true and fair view‟ of the organization. the financial statements have been identified“. it is clear that market and other stakeholders were not reasonably reassured by unqualified audit reports issued by major auditing firms. auditors‟ job is not to predict the future.going-concern paragraph in their report on the Enron‟s financial statements. Auditors are expected to comply with the laws and standards when conducting an audit. The financial crisis has taken this agenda to new heights and the role of auditors has become even more questionable. The bases of this claim is on the notion that auditors are privy to „inside‟ information and is therefore able to restrain management‟s enthusiasm and report superior information. Conservatives have argued that external audit adds value and credibility to financial statements. The case would have been different in deed. audit reports of companies failing shortly before the financial crisis did not reflect the „threat to insolvency‟ hence misleading investors and misusing the going concern guidance. the financial statements of Northern Rock.13 Auditing standards also require auditors to “perform audit procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor‟s report may require adjustment or disclosure in. However. Investors expect auditors to audit their firms independently and objectively with the purpose of best serving their interests. Priddy is in favor of change but thinks there are challenges facing the changes.14 In response to the auditors‟ independence and objectivity. According to Lord Lawson. For that case. and the mere provision of a going concern opinion does not in itself guarantee assurance. one of the largest mortgage providers in the UK. Auditors. failure to issue a going-concern opinion is insufficient evidence of failure of audits. changes that are important for the profession. finance leaders and committees have suggested that the auditing profession needs to not only to evolve but must transform. he posits that auditors acted in the way they were supposed but they should accept changes. on the other hand.

auditors will have assumed the role of management and back to fundamentals. The main question is who would audit the auditors‟ assumptions and critical judgments? In this case. then they should know that they would be different. while the market is increasingly changing. the bank was on a run during August and September 2007. Auditors are expected to do more. Nevertheless. If an Audit didn‟t exist in the first place. In fact. If this was so then we would have to be where we are at present. Nevertheless. the substance of a statutory audit opinion has remained unharmed for over a century. But accounts prepared by the auditor would neither be independently audited. This is a time whereby the need for genuine assurance has never been greater. the bank‟s interim accounts received a positive feedback from its reporting accountants.18 It is preferably simple to imagine that an individual audit of entities‟ financial statements would have identified the looming global financial crisis and its impacts. Generally. and they can do more. then it would have to be created anyway. nevertheless these hopes have to be realistic. But confidence in auditing has been eroded and this has made users of accounting information to pay no attention to audit assurances.19 . the audit profession has been using 20th century strategy against 21st century market demands and risks. most of the big downfalls were as a result of bad managerial decisions and not about fraud or even misappropriation of assets.opinion and in July 2007. little is known about the credibility that is added to financial statements and particularly because audit evidence is not made “public”. the existence of an audit is precisely to remain independent and objective. The financial disaster came as a result of complex and multiple factors over a long period of time. On the contrary. It cannot be more clearer that markets have become increasingly complex and that stakeholders‟ demands have not only increased but have become more refined.17 When an investor inquires about how the company accounts look like if they were prepared by Auditors. Failure to estimate the assumed risks at board level and static business models among other factors slowly mounted the depression.

As a matter of fact. If auditors cooperate with other market participants including those in charge of corporate governance. and i.”  In a recent review by the Audit Inspection Unit. the auditing firm of Lehman Brother was informed of this reality.e. concluded that audit quality in the United Kingdom was “fundamentally sound”  The Treasury Select Committee and FSA have also recognized the value of auditors work amidst the constraints they operate in.21 The banks during the financial crisis failed to identify and to take required steps in mitigating the liquidity risks. and internal audit.Time has come for auditors to acknowledge this gap. they have not been able to adjust to the ever changing market environment. auditors are well placed in a unique and privileged position to positively contribute to the financial stability of markets and it would be silly not to seize this timely opportunity.20 A study by ICAEW has indicated that 84 percent of the FTSE 100 boards consist of an Institute member and most of the other members‟ minister in key roles in the financial sector. the government body answerable for reviewing auditors. The fact is auditors have not been criticized in essence. they have to admit that this gap is not going away and even of more importance enfold it as an opportunity to make radically constructive changes. All these make the reporting framework responsible for corporate governance. many banks conceal their poor conditions by disclosing untrue financial statements. Some of these studies include:  A study by the University of Maastricht in 2009 (after the financial crisis) indicated that “auditors‟ work is valuable as it increases the confidence in and faith on financial statements. The Ernst & Young were the auditors of Lehman‟s accounting information and they . the expectations gap can be tightened as a result of an expanded scope of their work. In this case. including the audit regulatory body. But the expectations gap is mistakably supposed to refer only to the role of auditors yet more broadly it includes the role of non-executive directors. instead they are being criticized for not doing something different. Auditors have got the ability to close this gap. Most of the surveys conducted in the market generally support the need for audits and have conveyed confidence in audits. Moreover. audit and risk committees.

aided the bank to conceal $50bn debt for the market. and without such principles audits are worthless. notably to investors. this auditing firm was accused for this professional negligence by regulatory bodies of US.22 The independence of audits has become doubtful.23 . „Independence and objectivity are at the heart of an auditor‟s work. notably after the financial crisis. However.

The research methodology for achievement of this work will be on studying on literature in the auditing profession. specifically to the works written by authors from the UK and abroad: access to online databases. Since the thesis aims to examine the role of the auditor leading up to the financial crisis. Qualitative research is meant to develop explanations of social phenomenon. newspaper articles and websites. discussion papers. journal articles.CHAPTER 3 STUDY/STRATEGY My thesis study and/or strategy are to examine the role of the auditor directing up to the financial crisis. RESEARCH INSTRUMENT These are research instruments which I am using in my research. and publications from regulatory authorities. RESEARCH METHODOLOGY According to the nature of the topic. this thesis assumes qualitative research methodology. the research methodology that appeals to the achievement of this work is a study on literature in the auditing profession.      Internet E-Books News Papers Journals Articles Financial Crisis articles related to Audit. . it is primarily interested in answering questions such as “how” and “why”.

The banks during the financial crisis were unsuccessful to identify and to take necessary steps in reducing the liquidity risks. Auditors plan their audits to obtain a sensible level of certainty on the existence or nonexistence of material misstatement in the financial statements as a consequence of fraud and error. Auditors should work hand in hand with regulators. during this process auditors should carefully consider the risk of material misstatement in financial statements as a consequence of fraud or error. Banking sector mostly faced burden at the time of financial crisis. Many steps essential for reducing the risks of liquidity and marketing techniques by banks to conceal their poor status were used as well as using false and fake financial statements to encourage public to invest their money in it. INTERPRETATION It is important to broadly and objectively look at the effectiveness of financial statements. many banks concealed their poor conditions by disclosing untrue financial statements. Moreover. Banking sector failed to maintain its position in the world by lack of trust and confidence of people because of financial crisis. the structure and effectiveness of monitoring authorities. .CHAPTER 4 DATA ANALYSIS Auditors plan their work. reliable and effective. and those that are in charge of corporate governance. financial statements are prepared and presented by firms to reflect their true financial situation. and the quality of management of main financial statements risks. They object is to accumulate and assess audit evidence so as to form an opinion on the financial statements. Ideally. to design a general framework that will manage the creation of audit reports that are concise.

Auditing profession is gracefully evolving. controls. business modeling and financial management to improve transparency in the audit that is said in these difficult times. auditors' negligence can produce very serious issues like financial depression. . Fraud under IAS 240 is determined as "intentional act by one or more employees among management. and have a large option of firms. Gray and Mason reason that audit regulatory bodies should include non-accountants as members to increase public confidence. those charged with government officials or third parties. regular competitive tendering and a larger role for companies audit committees in selecting audit firms are drastic. Many critics believe that because of the auditors' negligence. the financial crisis of 2008 was made worse. having a second auditor checking decisions and the procedure of strict quality control.CHAPTER 5 RESULTS Auditors think that they have to be close to their customers to carry out efficient audit. Michel Barnier recommended a few changes that should be made in the auditing profession. conducting joint audits. involving the use of deceit to obtain an unjust or illegal advantage. especially if one company goes below." Auditors are responsible for auditing process to examine the validity and reliability of financial activities and financial statements of organizations. ICAEW believe that the role of the audit should be expanded to include risk management. Auditors can also help affected local companies. auditors do not want to or are ready to make drastic changes. These changes include: placing a cap on total market for large firms. However. In addition. the financial crisis has brought the dispute on audit at the forefront. In this respect. They also responded to the lack of independence of the acceptance of the principle of rotation. improving independence can limit audit and audit work. There has always been critical to audit practice. rotation of auditors.

. the environment in which auditors operate is very litigious. Second. The thesis discusses three main topics of the changing audit environment. The financial crisis has exposed deep seated feebleness in the prudential regulation and supervision of financial institutions. if the audit profession continues to respond in the same was done in the past.DISCUSSION The time has come for the audit profession to embrace a change in circumstances in which the value of audit came under increased scrutiny and criticism. The Treasury Select Committee has inquired the significance of direct extensive and all the time more elaborate audits. the response to past corporate failures remained unchanged. the need for auditors to challenge management and whether the auditor has been satisfied with management. The auditor takes the risk of being sued as a result of corporate failure or financial loss suffered as a result of failed audits. and ethical behavior called into question. The discussion paper stressed. the need for real certainty about the exact backward looking financial statements. It is very important to understand the environment in which auditors operate. First. the audit profession is experiencing a cultural challenge. As soon as the action is taken the better will be the future perception of the value of audits. among a myriad of issues. where the fine balance of risk and reward has created a world of caveats. Auditors are at the junction. their objectivity criticized. The audit profession has to get control of this opportunity to implement positive changes to maximize the value of audit and its important role in the protection of the financial system. when an individual audits were not successful. However. the system failed and therefore no aspect of the global financial market is going to be same again. This is a challenging and audit professionals should look forward to these changes. they were not identified exorbitant and systematic risks that nearly sank the global banking system. The crisis has made us realize the importance of reliability and validity of audits. It is evident that regulatory bodies are not going to bury their heads in the sand. However. Currently FSA and FRC issued a discussion paper on the contribution of Auditors to prudential regulation. there is a real risk that auditing profession would become irrelevant to more challenging and dynamic market. Auditors' independence is considered controversial.

a good example is the Sox regime in the America. although debatable. Independent voice raising comments about the risks of an institution is a valuable form of assurance that is likely to be gracefully welcomed by stakeholders. what this dissertation is to support is far from subjective and thematic approach which most believe to be a mere box ticking and institutions are unique. Most people have debated that financial institutions were developed in large and complex entities of both product and system point of view. comprehensible and coherent way. But the question remains. creditors and accounts depositors could have done better with the understanding of their own risk in any financial institution. The framework must be built on ethics. This is why it is difficult to regulate and even more difficult to audit such institutions. In fact. the structure and effectiveness of monitoring authorities. and the quality of management of key financial institutions risks. systematic risk and operational risk which is the most challenging to quantify. For example. However. auditors could work devotedly with stakeholders to design a report that more than a contrarian and forward looking. but a report that will give situational based view of risk. it is important to objectively look at the effectiveness of financial institutions tables. a very simple but important fact . without fear of what the auditors think in short. Key stakeholders such as investors. compulsory report could then be given to audit committees and regulators in line with the needs of stakeholders. . working against the risk of being too dictatorial and being litigated. In fact. They have their own rules which are important for any successful operating domestic and global market. CONCLUSION This thesis is outlined some of the challenges experienced by auditors in the current business environment. and who are in charge of corporate governance. there are merits to make such a report. "public". Firstly.Third. to design a common framework that governs the creation of an audit report that is concise. some of these practices are already in the market. reliable and effective. audit reports need to express themselves. Essentially. liquidity risk through credit risk. how can auditors' importance to be improved? Three ideas that could see better use of audit skills are presented with a goal of ensuring that auditors provide a real confidence. Auditors should work hand in hand with regulators.

Even more important concern is what might happen if the company ends up with only three firms. By combination the FSA prudential reporting with the interval insights of the audit. as presented above would be of valuable importance to the developing regulatory landscape that is now more and more the pursuit of the financial system in various ways. This is by Auditors and regulators along with the responsible corporate control will work much more as partners. Very excellent movement could provide a mechanism for this recommendation to happen would be the integration of the FSA in the Bank of England. and it is colossal coincidence of interest in ensuring that the investment world is safe for both depositors and investors. To call attention to and mitigate the effects of systemic risks is a crucial need to solve a complex set of puzzles. On the other hand. then the end result will be an ugly process of a typical box tickers. but part of the main characters of the crisis have been to other financial institutions and hedge funds and continued to practice in the market. there is also a need to develop an oversight team in charge of potential bubbles and auditors should be part of that team. from a prudential point of view. Furthermore. The industry is now left with only four big firms and these firms are severely berated for lack of competition. a comprehensive assurance. . rating agencies remained unharmed. Finally. The existing overlap between the audit process and regulatory compliance is obviously evident. stakeholders can be sure to get what they need.Secondly. breaking the notion that they are under control. auditors need to get out of the silos. There was no good and bad rewards for failure. institutional changes need to be made to push for a broader. This thesis assumes that these three recommendations. Continued premise on the wide held public view that auditors "did not trust" and pressing the same old screws. more concerted and subjective framework of financial information.

Due professional care in cases of high engagement risk. Narrow the audit expectation gap. 5. This is interesting. The shortcomings of audit. Priddy. Christodoulou. Ferguson. Practice Note 19: The Audit of Banks and Building Societies in the United Kingdom. viewed April 24th 2011. 16. 10. Accounting web (n. Auditors face inquiry call after Lehman revelations. viewed June 18th 2012. no. 1. and Basile. Auditing Practices Board. 3. AUASB. March 14. 72. 11. 2006. p. p. Draft Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) (Amendment) Regulations 2011. Vol. SEC’s Oversight of Bear Stearns and Related Entities: Consolidated Supervised Entity Program. Standards and Guidance. 17. March 2010. S 2008. . 14 14. BIS. viewed April 14th 2010. 2011. 8. viewed April 14th 2012. Practice and Cases. Giang. 13. viewed April 24th 2011.REFERENCES 1. 2010. Report of the Special Examination of Fannie Mae. Auditor Roles. ACCA. 2008. 7. Venuti. S 2010. Gray I. 2007. London: APB. Inman. 18. and Manson. S 2010. Audit reports targeted for reform. viewed April 12th 2012. 2010. ACCA. Value regained: restoring the role of audit in society (1-10). viewed April 18th 2011. Enhancing the auditor’s contribution to prudential regulation. 4 October. London: Allen Lane. 2008. The Audit Process: Principles. US Office of Federal Housing Enterprise Oversight. June. 2008. FSA and FRC. 10–11. Haddrill. Washington DC: SEC. 4. The future evolution of audit. P. Accountancy Age. Hampshire: South-Western Engage Learning. Holtzman. Paper F8 International: Audit and Assurance (AA). viewed April 12th 2012. 6. viewed April 16th 2011. S 2010.d). M. 15. Kaplan Publishing. P. US Securities Exchange Commission. 12. 2002. 4th ed. Internal Auditing. 2. viewed April 12th 2012. viewed April 14th 2010. 2010. 9. Framework of Auditor Roles and Practices with Respect to Performance Measurement. E. The Ascent of Money: A Financial History of the World. A. M 2009. CPA Journal. N 2008. Washington DC: OFFHEO.

LH. Hassink. No contact between watchdogs and auditors in the year before crisis. London: The Stationery Office Limited. RHG. Auditors must learn to articulate their value. . viewed April 12th 2012. Izza. HFD. 2010.. Journal of International Accounting. Corporate fraud and the audit expectations gap: a study among business managers.. Bollen. Meuwissen. viewed April 12th 2012. Inman. 1 July.19.. 21. p. M. Auditing and Taxation. CityAM. 18.. page 18. 23. MJ 2009. March 14. 2010. 2010. 20. viewed April 15th 2011. A new approach to financial regulation: judgment. P. de Vries. HM Treasury. G 2011. 22. Auditors face inquiry call after Lehman revelations. 85–102. focus and stability. Hicks.

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