Auditor failure to detect financial statement fraud?

Question

is it related to auditor independent?

Answer 1

It can be related to lack of auditor independence, as highlighted in articles I referred you to previously, but that is not always the case.

Some CPA firm partners suggest audit risk is higher during the first or second year of an audit. More audit failures occur when a CPA firm is new to an audit. The implication is that the root cause of the CPA firm's audit failure is the newness of the audit and lack of experience by the CPA firm.

THE ROOT CAUSE OF AUDIT FAILURE
The key question is whether audit failures are caused by isolated errors or more systemic factors. As vice-chairman of business assurance at Coopers & Lybrand in 1993, I began a study to identify the causes of audit failures. My colleagues and I found they occurred in the presence of several systemic factors: poor audit supervision, lack of training, judgment errors in dispute resolution and serving high-risk clients. It appears that similar causes underlie other recent audit failures such as those at the Baptist Foundation of Arizona, Colonial Realty, Sunbeam and WorldCom.

In addition some auditors’ skills are questionable. For example, WorldCom recorded millions of dollars in expenses in asset accounts without audit detection, and Healthsouth created income by manipulating its contractual allowance account. The inept auditing that failed to detect these violations was likely due to deficiencies in training, supervision and basic audit judgment. These examples confirm the findings of our study: Audit failures are due to systemic flaws in quality control programs. Logic suggests the inspection process must detect these flaws before they result in audit failures.

Enron and Andersen - What Went Wrong and Why Similar Audit Failures Could Happen Again
Unconscious bias, compounded by organizational flaws and a culture at Andersen that emphasized marketing non-audit services to audit clients in an effort to boost profits; significant conflicts of interest and self-interest; and greed all help explain the audit failure at Enron.

The articles below should be of help to you.