The role of auditors in the financial crisis, part one

The role of auditors in the financial crisis, part one

The role of auditors in the financial crisis of the first part, we want to explain in several parts.

Introduction

The audits performed by independent auditors have led to the validation of the companies’ information, and also the duties and roles of the companies and their managers in the preparation and presentation of financial information are mentioned.

Auditing financial reports of a company creates a reasonable assurance for the stakeholders of that company who use this information. (Sika, b 2008)

In recent years, based on the claim that accountants provide independent, true, fair and correct statements of company events.

Accountants as auditors have strengthened their legal position.

However, it is claimed that this skill empowers investors, creditors and other stakeholders to control and manage risk.

This claim has been continuously violated due to frauds and unexpected corporate bankruptcies.

Due to the escalation of such events, this suspicion has increased.

that the auditors do not have the independence, skill and motivation to comment on the company’s events. (Okner, 1987)

In 2008, Western macroeconomics entered a deep financial crisis, which manifested itself through the bankruptcy of banks and many government interventions to save financial institutions.

In this article, it will be discussed about the quality of the audit work by examining the audit reports of prospective financial statements. (Sika, 2009)

Financial crisis and auditors

One of the clear characteristics of the recent financial crises has been that these crises have been gradually caused by Western economies, especially the United States.

And it has been stimulated through increased credit and risk acceptance through complex financial documents and ineffective corporate structures and regulatory mechanisms.

Banks, investment funds and insurance companies have been the main factors in the financial affairs of the economy.

Estimates show that these companies have lost around 2.8 billion dollars.

In addition to financial costs, these crises have also resulted in social costs, which have not been possible to accurately calculate (Bank of England, 2008).

Many measures have been taken by different countries to get out of these crises.

For example, the British government has earmarked about 750 billion dollars to support financial measures (Sika, a 2008).

The United States government has set aside about 8.5 billion dollars (about 60% of gross domestic product) to prevent the collapse of its financial system. (Sika, c2008)

The German government has allocated more than 400 billion dollars to help troubled banks.

Also, countries such as Ireland, Iceland, Hungary and Turkey requested help from the International Monetary Bank to manage the crisis. (Wall Street, 2008)

The initial estimate shows that Western banks, contrary to many accounting standards, had about 500 billion dollars of wrong assets and liabilities.

While now these figures are being corrected.

A number of banks used it to show higher profits and hide their losses by showing a higher value for their assets for a long period.

In this situation, the pressure on the auditors has increased due to the belief that “a green light from the auditor means that the company’s accounting methods are accepted” (Ferguson, 2008).

Studies conducted in the United Kingdom, the United States, Germany, Iceland, the Netherlands, France, and Switzerland show that fraudulent financial actions were carried out by companies and banks that accepted auditors’ opinions on their financial statements before entering the crisis. have been.

For example, on January 28, 2008, the fifth largest investment bank in the United States, Berne Stern, received an acceptable opinion on its financial reports;

which was finally sold on March 10 due to financial problems with the support of the government. (American Stock Exchange, 2008)

On February 27, 2008, Carly Lee received a favorable opinion on its financial statements, and as of March 9, the company was talking to creditors;

And finally, on March 12, it was destroyed due to its inability to pay its debts. (Sika, a2008)