Crunch time for bank audits? Questions of practice and the scope for dialogue

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -The purpose of this paper is to review the way in which auditing issues have been raised and addressed during the credit crunch and developing global financial crisis. Design/methodology/approach -Analysis is based on a review of the academic auditing literature, regulatory and audit reports, together with papers from the financial press. Findings -After highlighting the relative lack of media attention devoted to the external auditing function in the light of major corporate collapses, the paper considers what, contrastingly, is an active and ongoing series of responses to the current crisis on the part of auditing firms and the profession more generally. Through such analysis the paper explores a number of implications of the credit crunch for both auditing practice and research.Research limitations/implications -The paper is constrained in part by the rapidly unfolding nature of events, with important policy developments arising almost on a daily basis. The paper draws primarily on events up to the beginning of October 2008. Practical implications -The paper has important messages for audit practice and research, including the technical capacities of external audits in the banking sector, the contributions of standard setting bodies and regulatory oversight, and the scope for enhanced dialogue between such parties and audit researchers. Originality/value -The paper serves both to focus and stimulate analysis of the credit crunch on the audit profession. It demonstrates the complexity of contemporary practice and highlights the importance, especially from an educational perspective, of developing understanding of banking audit practice and associated regulatory interactions -including the presented possibilities both for research and enhanced academic-practitioner dialogue.

Going concern modifications and the self-fulfilling prophecy: evidence from extreme market conditions

“…Albrecht et al (2020) find that because auditors feared exacerbating the contagion within the financial services sector, auditors were less likely to give GCMs to systematically risky banks during the financial crisis period. Furthermore, Woods et al (2009) find that during the GFC, a lower percentage of failed banks had received a GCM compared to banks that failed pre-crisis.…”

Fair Value Accounting and Implications for the Auditing Profession: Historical Overview

“…Subsequently, the role, significance and independence of external auditors have been questioned because most failed institutions had got unqualified opinions (Haswell & Evans, 2018). As a response to the GFC, the issue of auditing fair value estimates was the main issue for the auditing profession (Dixon & Frolova, 2013;IAASB, 2008;Smith-Lacroix et al, 2012;Woods et al, 2009).…”

Modelling the impact of turbulent economic conditions on non-audit services provision and audit quality during the global financial crisis

“…These findings are further corroborated by episodes of many risky firms (banks) that did not avoid financial distress as a result of low-quality reports from their auditors (Sikka, 2009). Moreover, as Woods et al (2009) pointed there was an increase in the number of firms that filed for bankruptcy without receiving a modified going-concern report during the GFC relative to pre-crisis, while the engagement of Big4 auditors in annual audits of firms was significantly reduced during GFC (Persakis and Iatridis, 2016). However, proponents of the opposite view not only claim that there is no substantial decline in the quality or independence of audit reports, but they also show that auditors’ tendency to release going concern modified reports increased during the GFC (Geiger et al , 2014; Xu et al , 2013; Xu et al , 2011).…”