The 2008 financial crisis exposed vulnerabilities in accounting, auditing, and risk management. Lax oversight of financial institutions, overreliance on complex financial instruments, and aggressive accounting practices contributed to the collapse of major banks and the freezing of credit markets.
Auditors were criticised for failing to flag excessive leverage, risky derivatives, and inadequate disclosure of off-balance-sheet entities. The crisis highlighted the limits of traditional auditing in monitoring systemic financial risk and emphasised the need for more rigorous, forward-looking approaches.
Regulatory responses included strengthened capital and liquidity requirements, enhanced reporting standards, and a focus on stress testing for banks. The crisis also accelerated the adoption of fair value accounting and greater transparency in financial statements.
The event permanently reshaped the auditing profession, prompting both the US and UK to reassess the role of accountants as watchdogs of financial stability. It remains a stark reminder of how accounting failures can contribute to global economic upheaval.
