Financial System, Audit and Corporate Governance During and After the Financial Crisis

Abstract

A financial system is a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds. Financial systems exist on firm, regional, and global levels. Borrowers, lenders, and investors exchange current funds to finance projects, either for consumption or productive investments, and to pursue a return on their financial assets. The financial system also includes sets of rules and practices that borrowers and lenders use to decide which projects get financed, who finances projects, and terms of financial deals. The concept of "internal control" conveys a difficult and complex process. Different countries have different interpretations of the internal control system, and in accordance with their tradition use different methods, techniques and philosophies for its implementation.The financial system of our economy, although it must be acknowledged that it is not very modern and developed, is still quite complex. In support of a complete system with all components, there is a need for harmonized investment in many directions at once. Financial crises and stock market crashes have clearly demonstrated the impact of investors’ sentiment on asset pricing and stock markets’ efficiency. Herd behavior, which is behavioral similarity based on individuals’ interaction that leads to convergence of action and correlated trading (Hirshleifer and Teoh, 2003), is one of the most important behavioral biases that is more likely to occur during periods of market stress when individual investors prefer to follow the market consensus, being reluctant to follow their own knowledge or beliefs (Christie and Huang, 1995). Management on all levels must have full confidence in the integrity and independence of the audit process.Financial system, audit and corporate governance (CG) has come to the forefront of academic research due to the vital role it plays in the overall health of economic systems. The wave of U.S. corporate fraud in the 1990s was attributed to deficiencies in corporate governance. The recent 2008-2009 global financial crisis, triggered by the unprecedented failure of Lehman Brothers and the subprime mortgage problems, renewed interest on the role of corporate governance in the financial sector. The main purpose of this scientific paper is to study financial situation, audit and governance and strategies for optimizing investment, concretelly in the albanian financial environment. Keywords: Financial crisis, corporate governance, emerging economies etc. DOI: 10.7176/RJFA/14-10-01 Publication date: May 31 st 2023