Write a short essay addressing the following issues: Some managers commit undetected fraud in producing financial statements. Presumably, if the auditors were really diligent and the penalties for fraud were high enough, there would be no fraud -- yet fraud exists. Does this mean that auditors are not doing good job? Or is there an alternate explanation? What is the best institutional framework for reducing fraud?

References

Brickley, J. A., Smith, C. W., & Zimmerman, J. L. (2016). Managerial Economics and Organizational Architecture (6th ed.). New York: McGraw-Hill Education.