The failure of many auditing firms to raise red flags about accounting irregularities in companies such as Enron and WorldCom is generally attributed to all of the following factors except _____________.
A) the desire to get future auditing contracts from the company
B) the desire to get consulting work from the company because most audit firms also do consulting work
C) the fact that auditors are appointed by the firm
D) the failure of U.S. audit firms to hire technically qualified professionals

Question

Quizplus · Accepted Answer

The failure of auditing leading to the bankruptcy of Enron and WorldCom likely had several causes. First, auditors are appointed by the firm being audited. The desire to continue that business relationship sometimes makes them overlook financial irregularities. Second, most auditing firms also do lucrative consulting work with the firms that they audit. Understandably, some of them tend not to ask too many difficult questions, because they fear jeopardizing the consulting business.

The Failure of Many Auditing Firms to Raise Red Flags