Auditor Liability and Culpability in the Savings and Loan Industry

Abstract

This paper discusses the role of auditing and its share of the blame for the savings and loan (S&L) crisis in the US. We first discuss who the auditors' client were in the savings and loan industry and examine auditor performance from that perspective. We assume professional status on the part of auditors and ask if their performance was consistent with that expected of professional. Our discussion and analysis is based upon an examination of accounting for everyday on-going business transactions in the S&L industry. From this examination we conclude that auditors may have followed the rules with respect to generally accepted auditing standards, but they apparently did not always assess the economic consequences of the transactions audited. Given our conclusions, we then ask if the standards to which professionals should be held should transcend a simple adherence to the rules.