Twofold malevolence of bank and audit failures

Abstract

This paper aims to better understand why banks have collapsed even though prior audit opinions gave them clean bill of health, especially in the context of financial crisis. The popular notion attributes audit failure mainly to moral hazard. Nevertheless, when cast within the public secrecy lens, the realities of ethical dilemma and knowledge gap emerge. Ethical dilemma manifests problems of compromise of independence, moral hazard, collusion and the muteness of the law of silence. In addition, knowledge gap constrains prediction of the probability of bank failure through the myth of knowledge that cannot be shared, the hardship in articulating labour of the negative and the fear of defacement shock. The twofold ills necessitate fusion of ethical perspectives in coping with ethical dilemma. Furthermore, fusion of normal audit risk model and surveillance anatomic model would be relevant in narrowing knowledge gap for effective prediction of bank going concern status.