Auditing and assurance - Essay Example

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Auditing and assurance

Therefore, this report will discuss the background of the financial crisis and the proposals tabled by the commission. 1. Background of the financial crisis The financial crisis started in the year 2007 and spread with intense in 2008 despite of the central banks and regulators effort to calm it down (Merkel, 2012). In early 2009, the global economy was experiencing recession and the only way out was to focus was on preventing the downtown from prolonging to a great depression. The root causes of the financial crisis had to be looked into so as to take a cause of action (Se Hoon et.al 2008). Everyone one was responsible for the financial crisis from the government, auditors, credit agencies, banks and the public. But most of the causes originate from banks and financial institutions since they are responsible for regulating monetary policies and financial stability. Banks and other financial intermediaries play a critical role in the financial system thus it is vital to understand their role (Allison 2012). For instance, they respond to contagion meaning that one shock can affect a wide area. Therefore, if a shock is experienced by the banks, then the whole financial sector will experience the same impact. According to Allen (2001), a study conducted shows that when banks are have different network structures, they likely respond to contagion. Diamond (1996) points out those banks insure against liquidity shocks by having their interbank deposits exchanged. ...Show more

Summary

The response after the crisis was to find way of mitigating the crisis and prevent another one. Auditing was used as one of the vehicles in mitigating the effects of the current financial crisis (Se Hoon et.al 2008). Had auditing not been around, the financial crisis would have been even worse. Therefore, this report will discuss the background of the financial crisis and the proposals tabled by the commission…
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