The word audit is respected by many who put their trust in it. It stands for professionalism where an auditor is a highly qualified accounting personnel, probably a chartered accountant who is licensed by the financial authorities in the country. They carry out the duties of checking and confirming the figures of an organisation which is usually a profit-making business concern. Once the auditor puts his signature on the accounts it represents a true and fair view of the state of affairs in the business. Especially if the auditor is a large audit firm, like the so-called Big Four audit firms in the world.
A lot of investors put their trust and base their decision-making on the fact that the accounts are audited or certified by these big audit firms. But history has shown that a lot of big corporations have engaged in fraud and have subsequently collapsed, leaving a trail of losses for investors who have put their trust in the audited accounts of these companies. They are left in a daze and do not understand how these companies that they have invested in can go bust just like that. The accounts often show a very healthy and dynamic business.
Little do they know that they are a few dark secrets in our business world, especially those related to auditors. For a start, we must understand that auditors are paid by the companies that they audit. Straightaway we can see a conflict of interest here, isn't it?
And where money is involved, corruption can take place whereby the companies can pay off their auditors to sign and certify their accounts.
Here is a list of big corporate frauds involving auditors. We note that there have been numerous other audit frauds whereby the companies engaged just small, unknown audit firms for the purpose. Although small, these audit firms are also certified by the relevant financial authorities in their country.
Our top ten audit accounting scandals involving auditors is here. This article is from the archives of CENFIS and it is undated. The last case mentioned was in 2008, during the subprime crisis. We can see these frauds happening time and again even till today. The reason is probably due to the fact that reform of the system is difficult and not attempted yet.
https://www.wallstreetmojo.com/accounting-scandals/
Learning message: Do not put all your trust in the official figures of companies that you invest in.
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