The article: What do we know about audit quality? Proxy for audit quality
What are the two qualities required for qualified auditor: competence,
The smartest guy in the room
Enron case, questions in the end
The legislation created financial regulatory processes to limit risk by enforcing
transparency and accountability. Because the
of the late
2000s was due in part to low regulation and high reliance on large banks, one
of the main goals of the Dodd-Frank Act was to subject banks to more
stringent regulation. The Act keeps the banking system under a closer watch.
Home Mortgage borrowers doesn’t qualify for the mortgages by traditional lending
criteria. Lending criteria were relaxed dramatically which qualified a whole class of
first-time borrowers. Lower interest.
Banks have incentives to relax lending standards. Banks served as intermediaries to
collect fees. Accounting standards facilitate the fair value accounting rules, and cause
immediate gain which is a big incentive for mangers to maximize the number and
number of mortgages.
Auditors didn’t really check the false information in loan applications. And the rating
agencies didn’t check for the ability f the borrowers to repay the loan. Rating
agencies understate the default risk.