Summary of “Asleep at the Wheel (Again)? Bank Audits During the Lead-up to the Financial Crisis”

During the period before the most recent financial crisis, auditors failed to give advance warnings of systemic risk, leading some of financial institutions collapsed. After research, the investigator suggests that lack of advance warning results from the limitations of existing auditing and regulation and accounting institutions rather than from the inattention of potential risk made by auditors. This paper involves data from samples of all US headquartered US-based bank holding companies. Author uses all available banks each year to assess year-to-year changes in audit risk responsiveness and suggests changes in sample composition affect findings. Author also uses the same set of banks in all years to eliminate the reason of sample composition and introduces the reason that failed firms are excluded from analysis. Author uses a bank audit fee model LAFEE that contains 21 variables. The first five are test variables to show the audit attentions and others are to reflect engagement. In the analysis of the experiments results, author focuses on retention risk, distribution support risks, investment risk and charge-off from 2005 to 2007. By the trends of indicator changes, it’s obviously shown that the failure of risk warning cannot blame on auditor’s inattention. There are three policy implications from such as using risk-based audit approaches will improve the auditor’s ability to recognize and respond to audit risks, enhance the context of auditor’s report to provide more information, and bank regulators should consult bank auditors to stay informed about emergent