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The Information Asymmetry, Corporate Failures in Contemporary Issue in Accounting - Essay Example
Author : werner85
Finance & Accounting
Pages 9 (2259 words)
The information asymmetry, corporate failures in contemporary issue in accounting Name: Course: College: Tutor: Date: Part A. Accounting system and corporate failures Efficacy of a firm’s accounting and audit system in minimizing agency conflicts depends on whether the accounting principles are well applied and consistent…
The internal auditor plays a critical role in reducing agency costs by ensuring and assuring that financial reports prepared by the firm are consistent with regulations and standards as expected by the investors (Ahlawat & Lowe 2004, p. 147). There is often a business relationship between the client and the external audit. The firm contracts the auditor to audit and attest to the firm’s accuracy of the financial statements. Corporate failures and major financial scandals like Enron and WorldCom have resulted from poor accounting system where there were information asymmetry between shareholders, investors as well as other outside parties, and the insider parties mainly the management executives and the internal auditors. There is also a business relationship between the auditor and the shareholders who rely on the financial statements prepared by the auditor. Internal audit function works closely with the management in examining internal controls, detecting fraud and advising them in the appropriate remedial measures in case of fraud detection in the system (Sengupta 1998, p. 462). ...