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Asleep At The Wheel (Again)? Bank Audits During The Lead-up To The Financial Crisis

52 Pages Posted: 10 Jan 2012 Last revised: 24 Feb 2016

Rajib Doogar

University of Washington, Bothell

Stephen P. Rowe

University of Arkansas

Padmakumar Sivadasan

Tulane University

Date Written: August 6, 2013

Abstract

We present the first large-sample empirical evidence on U.S. auditors’ responses to changes in entity-level audit risk during 2006-2007, the period leading-up to the financial crisis of 2008-2009. Treating fiscal year 2005 engagements as a pre-crisis benchmark, we find that audit attention during fiscal year 2006 and 2007 bank audit engagements shifted in line with the shifting audit risks. One implication of these findings is that auditors were able to recognize and respond to financial statement impacts of the macroeconomic shocks that unfolded during the lead-up to the crisis. Another implication is that auditors’ failure to issue advance warnings of increasing auditee riskiness during the time leading up to the financial crisis more likely reflects limitations of extantaccounting and auditing rules rather than a lack of auditor awareness or attention to those risks.

Keywords: Auditor risk responsiveness, banks, business risk, financial crisis, macroeconomic shocks

JEL Classification: D20, D24, E44, G21, L11, L15, M40, M41, M49

Suggested Citation

Doogar, Rajib and Rowe, Stephen P. and Sivadasan, Padmakumar, Asleep At The Wheel (Again)? Bank Audits During The Lead-up To The Financial Crisis (August 6, 2013). Contemporary Accounting Research, Spring 2015, Volume 32, Issue 1, Pages 1–421. Available at SSRN: https://ssrn.com/abstract=1982234 or http://dx.doi.org/10.2139/ssrn.1982234

Rajib Doogar (Contact Author)

University of Washington, Bothell ( email )

18807 Beardslee Boulevard
Box 358584
Bothell, WA 98011-1712
United States
(425) 352-3332 (Phone)

Stephen P. Rowe

University of Arkansas ( email )

Business Bldg. 450
Fayetteville, AR 72701
United States

Padmakumar Sivadasan

Tulane University ( email )

7 McAlister Drive
New Orleans, LA 70118
United States
5048655208 (Phone)

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