BUACC5935 Auditing and Assurance Services - Group Assignment Help

Introduction

The conventional framework of any business, nowadays, suggests separation of ownership from the management. Though, seemingly this might make things better for both the owners and the management as a way to focus on their region of work, but occasionally such form of a setup has bring around financial disaster to the companies.

Anticipation of information gap as a result of ownership separation from management, and period of financial crisis for the company, has propelled company to resort to some sort of monitoring, control and governance, both internally and externally. The reasons behind opting for corporate governance mechanism are associated with the agency theory and financial crisis that the companies witness. The theory of agency addresses the conflict of interest between owners and management that often leads the latter to opt for unethical and sometimes illegal means to satisfy their quota of financial benefit. In a similar manner, periods of crisis are a testing time for any organization; however, most of the companies under question resort to ingenious method to upgrade their financial standing under questionable circumstances. 

Recent times have produced examples of financial scandals that lead to dissolution of companies all together such as Enron, WorldCom, Lehman Brothers and many others. The author of Auditor Independence: Auditing, Corporate Governance and Market Confidence, Ismail Adelopo underlinedthe reality of these financial meltdowns, that they adversely affected the market system and its key players, and also highlighted the inadequacy of the audit procedures of company’s financial statements and position (Adelopo, 2016). Thus, in wake of these catastrophes, setting up of Audit committees as a corporate governance mechanism came into full force, within which, the major emphasize was placed on Auditor Independence.

Lehman Brothers and Enron Scandal

Lehman Brothers

Financial services firm, Lehman Brothers filed for Chapter 11 Bankruptcy Protection in September of 2008, which, to date, is the largest bankruptcy filling in the United States history. 

Before its collapse during the financial crisis, Lehman Brothers were indulged in devious activities and business venture that made the firm vulnerable to any kind of financial meltdown. In the early of 2000, this financial firm moved into business of mortgage orientation, and gradually started to dominate the subprime market. Their interference in mortgage business led them in possession of assets worth $680 billion against firm capital support of only $22.5 billion. This made, the apparently investment bank into a real estate hedge fund (Dosdall & Rom-Jensen, 2017).