In 2011 a stock analyst shorted Sino Forest Corp and announced it was a “ponzi scheme”. Shortly after that the company’s stock declined sharply and the company announced bankruptcy. The main reason for its downfall was Accounting or rather lack there of.
Sino Forest was a Chinese company listed on the Toronto Stock Exchange. Its main issue was that its accounting department misstated its assets as well as operational and its auditor Ernst & Young all missed both. investors lost billions and are suing the parent company to get it back.
These kind of moment show why its very important o have competent and ethical accountants as well as independent auditors whose work should be verified. Perhaps one way to combat failures in auditing would be to have 2 auditors and compare their work or have one auditor and send it to another auditor for verification. Although this might add extra cost to the company, if you ask the shareholders who lost billions in Sino Forest, they would tell you it would have been worth it.