Audit in a Turbulent Environment -Effects on Audit due the Financial Crisis & Criticism

Abstract

Background & Problem description: Audit is an important part of the market economy. The auditors rely on the confidence of stakeholders and when distrust occurs it may have harmful consequences. The financial industry is as well an important part of the market economy seeing that it enables growth possibilities. Confidence in the financial industry is a necessity for a functioning and stable economy. Confidence is enhanced with audit, through their professional skepticism when reviewing financial statements stakeholders base their decisions on. When a crisis hits the global economy the disturbance in the financial market threatens confidence in the financial sector. This became the consequence of the financial crisis of 2008. Auditors have been challenged and criticized in the aftermath of the financial crisis and given their importance in the market economy, changes are being discussed both in audits and the system they are obliged to. Furthermore, the confidence in the financial companies and their financial statements is decreasing due to the criticism towards auditors. The loss of reliability for the financial industry can have harmful consequences, thus the importance of the auditors reviewing the financial industry correctly. Purpose: The research aim is to examine the practical work and behavior of auditors and how it may have been altered due to the financial crisis and the recent criticism towards the auditors. Demarcation: A limitation is made to auditors working with financial companies, mainly banks. Focus lays on auditors’ perspective and not accounting regulations. Method: In order to understand the relationship between the financial crisis and changes in audit, a qualitative method is used. Interviews have been conducted with six chartered auditors working with financial companies in order to build up the empirical findings. Statutory frameworks and related articles have been used in order to build up the theoretical framework. Conclusion: Pervading changes and effects have not occurred throughout the entire practical work of an auditor. However, the financial crisis and criticism has affected parts of the practical work and therefore an effect has after all occurred. Auditors’ behavior is as well affected by the financial crisis and the recent criticism. Higher requirements on documentation, increased focus on internal control, and specialization are examples on changes made due to the financial crisis and criticism.