The Roles Of Auditing And Assurance Services

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Introduction The role accounting firms played in the last financial crisis raised questions about the legitimacy of auditing and assurance services. Auditors, who are considered independent and are supposed to provide reliable information to financial statement users, played a major part in the financial institutions’ crisis. The role of auditing is not to stop management from making poor business decisions, but it is to make sure that those decisions are properly disclosed (Rapoport, 2010). However, auditors failed to fulfill that role while auditing some of the largest financial institutions, which led to a huge financial meltdown during the first decade of the 21st Century. As a result of the financial crisis, questions regarding the…show more content…
However, it is important to assure a greater independence and objectivity that offset the cost of switching. One example where auditors’ independence raised question is when the Ernest &Young auditors allowed Lehman Brothers to use the off-balance sheet financing method to hide its leverage. Ernest & Young helped Lehman Brothers, a company they audited for many years, to mislead investors about the company’s financial position which eventually led to its collapse. Audit Deficiencies External auditors could have prevented the collapse of large financial institutions by being more skeptical and exercising professional due care while servicing their clients. In many cases, auditors failed to obtain sufficient evidence supporting key assumption of management asset valuations, asset ownerships or the use of accounting estimates. Ernst & Young failed to exercise professional due care while auditing Lehman Brothers. Lehman Brothers used Repo 105 transactions that a British law firm approved for them to make its balance sheet look better and Ernst & Young agreed to the accounting management applied to these transactions without actually examining any of the Repo 105 transactions. According to Tracy Coenen (2010), Ernst and Young didn’t even check the impact of these transactions on Lehman financial statements, whether they are material to their balance sheet and therefore did
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