Financial Audit Failures, Research Paper Example

Perfect financial audit play a vital role in corporate governance, organization risk management, and assumptions testing that are fundamental to the business models of the organization. This facilitates that all the stakeholder needs are addressed more effectively (Pope, 273-283).

Financial audit failures that have been documented in the past have necessitated for implementation of tighter as well as stricter regulation in the process of financial auditing. However, this is a step that has been implemented at a late stage when big losses have already been incurred by the stakeholders (Ashbaugh & Pincus, 417-434).

Financial audit failures have been documented in many organizations. One most notable reason for financial audit failures is laxity in the assembling of ample pertinent data. This problem is further compounded by failure to exercise the required professional care in the course of auditing practices. Auditors may also fail to demonstrate the suitable professional skepticism echelon. If any audit process is to be successful the optimum GAAP requirements should be properly interpreted and applied. Lack of this important consideration is a potential cause of financial audit failures (Abarbanell & Bernard 221-242).

Some notable scandals have occurred when problems associated with financial audit failures are brought to light. Some auditing firms opt to hide vital information, facts as well as figures so that the stakeholders are kept in darkness (Bell, Landsman & Shackelford, 35-43).  After hiding significant financial details, the audit firms sometimes files for bankruptcy which consequently leads to the loss of their rights of auditing. At this point, it is the responsibility of the regulator to try and restore the confidence of the investor. This is the reason that prompts the introduction of tighter regulations in this important field.

Works cited

Abarbanell, J. & Bernard, V. Is the U.S. stock market myopic? Journal of Accounting  Research 221-242, 2000.

Ashbaugh, H. & Pincus, M. 2001. “Domestic accounting standards, international accounting standards, & the predictability of earnings”. Journal of Accounting  Research, 417-434.

Bell, B., Landsman, R. & Shackelford, D., “Auditors’ perceived business risk and audit fees: Analysis and evidence”. Journal of Accounting Research, 35-43, 2001.

Pope, P., “Discussion of disclosure practices, enforcement of accounting standards, and analysts’ forecast accuracy: An international study”. Journal of Accounting  Research , 273-283, 2003.