Unaccountable External Auditors

External auditing firms are supposed to provide detailed, accurate and unbiased information about the financial situations of their clients. However, the author contends that the failures of many external auditors helped contribute to the “Great Economic Meltdown.” He says a radical overhaul of the U.S. system of external auditing of corporate financial affairs is necessary.

This article is adapted from a chapter in “How They Got Away with It: White-Collar Criminals and the Financial Meltdown,” edited by Susan Will, Stephen Handelman and David C. Brotherton, published by Columbia University Press. ©2012 Used with permission. The author’s opinions aren’t necessarily those of the ACFE, its executives or employees.

Many culprits contributed to the factors that led to the recent "Great Economic Meltdown" — mortgage companies, investment banks and the Securities and Exchange Commission (SEC), among others. However, external auditing firms, which are supposed to provide detailed and accurate information about the financial situations of their clients, have mostly escaped implication, according to some.

Of course, the unaccountability of some external auditors isn’t a new problem. Here we’ll discuss cases that predated the meltdown, U.S. laws designed to encourage better auditing and a recommendation to foster a better system.