Auditors also had a hand in the subprime mortgage crisis. An example of this is the case of New Century Financial, one of the largest subprime lenders. New Century Financial exaggerated their profits and relied on these exaggerated profits to cushion them from the blow of defaulted mortgages on troubled home loans. The company responsible for auditing New Century Financial, KPMG, still proceeded with the proverbial auditor’s “stamp of approval” (‘Lender Failed’, 2008). This, in turn, gave investors who bought these subprime mortgages false confidence in the lenders.
In order to avoid the financial crisis of the subprime mortgage misfortune, lenders and auditors should have worked together more diligently and also should have employed
References: Kothari, S.P. & Lester, R. (2011). The role of accounting in the financial crisis: Lessons for the future. Retrieved from http://ssrn.com/abstract=1972354 VanDenburgh, W.M. & Harmelink, P.J. (2008). Accounting implications of the subprime meltdown. The peril of forgetting the fundamentals. The CPA Journal, December 1, 2008. Retrieved from http://www.uic.edu/classes/actg/actg593/Readings/Credit-Crisis-09/Accounting-Implications-of-the-Subprime-Meltdown.pdf The New York Times. (2008, April 14). A lender failed: Did its Auditor?. The New York Times. Retrieved from http://dealbook.nytimes.com/2008/04/14/a-lender-failed-did-its-auditor/