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Research Case: According to a recent study (Author, date), there exists a three person collusion problem, consisting of an owner, a manager, and an auditor in organizations. The concern typically is that a manager and an auditor can collude against the owner in auditing practice. The value of auditing vitally depends on whether the auditor and manager collude and produce any results in their favor. Owner and manager contracts are similar where leasing of an incoming generating asset such as retail space or mineral and oil deposits etc. In these cases it is difficult for an owner to verify the amount earned or generated by that asset which in turn provides an opportunity to manager to consume any amount not reported to the owner. There are many reported cases such as Enron (2001), Waste Management (1998) and WorldCom (2002) scandals. These companies falsified their documents and reported profits initially, and then reported abrupt losses. This was only possible with the help of auditors. For example, in the Enron case, the audit firm Arthur Anderson Company was receiving a staggering amount of US$1 million every week, as an incentive to keep the fraud undercover. Thus the relationship between auditors, managers and owners must be explored in depth, to protect organizations from fraud, and also save the world from huge financial losses, and in some cases even loss of human life (author, date). This research is set out to explore this problem, focused on Australia, through exploratory research and real cases. Research Question: Are managers and auditors colluding against the owner in Australian auditing practices?
