Title: Twofold malevolence of bank and audit failures

Authors: Jonathan Njoku

Addresses: Kuwait-Maastricht Business School, Kazima Street, Block 3, Dasma, P.O. Box 9678 Salmiya, 22097, Kuwait

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.

Keywords: going concerns; ethical dilemma; knowledge gap; public secrecy; bank failures; audit failures; financial crisis; audit risk; independence; moral hazard; collusion; law of silence; surveillance anatomic model; auditing; ethics.

DOI: 10.1504/AJAAF.2013.063309

African Journal of Accounting, Auditing and Finance, 2013 Vol.2 No.4, pp.312 - 333

Published online: 29 Jul 2014 *

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