Without generalising, it may be said that problems usually arise when the independence of auditors itself is compromised or the auditors lack competence in performing their role. Compromising the independence of auditors could lead to moral hazard. As such, auditors are subjected to greater scrutiny and regulation so as to increase the reliability of their work. 19.
One of the important roles of audit is to check the so called smart accounting practices, if any, followed by management to overstate profits or understate expenses / liabilities. Let me give a few examples of such smart accounting practices that we have observed. 1.