Why do audits fail? Evidence from Lincoln Savings and Loan

A description and critique of the procedures used to audit a set of material transactions from Lincoln Savings and Loan (LSL), a well-known audit failure, is presented. The resulting civil litigation yielded considerable auditor deposition testimony and working papers presented as evidence that provide a basis for formal analysis and proposal of alternative procedures; other research methods have not proved very successful in determining why audits fail, but a detailed analysis suggests several potential reasons, especially when management fraud is involved. Opportunities for future research and integration with professional standards are also discussed.