Tax, Wealth, and Risk Management Graduate Program Blog

Professor William Byrnes, Texas A&M University School of Law
Co-author, Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide

Monday 24^th August 2026 Plenary: Do auditors play a contributory role in facilitating the failure of effective and efficient asset recovery? 15:15 Session 1: Identifying and understanding assets and their contextual parts: the main challenge in recoverability? 

Howdy, distinguished colleagues of our annual Jesus College, Cambridge gathering. Today, I will address the important and sometimes uncomfortable question:

Do auditors play a contributory role in facilitating the failure of effective and efficient asset recovery?

My response, from a United States perspective, and as a former accountancy department faculty member, is that the answer is “nuanced”.

Auditors are not the primary actors responsible for recovering assets. Yet, the quality of their work significantly influences whether assets are (1) identified, (2) valued, (3) preserved, and (4) ultimately recovered. When audits fall short, they can unintentionally contribute to asset-recovery failures.

Conversely, rigorous, professionally skeptical audits greatly enhance recoverability and reduce losses.

Recoverability assessments and impairment testing demonstrate that (a) identifying relevant assets, (b) estimating future cash flows, and (c) evaluating recoverability are complex tasks that require substantial judgment and accurate information.

To understand the auditor’s role, we must first understand what asset recovery means.

In the United States, asset recovery extends beyond recovering stolen funds or fraud proceeds. It includes: (1) the identification, (2) tracing, (3) valuation, (4) preservation, and (5) recovery of assets – in the context of: (a) bankruptcy proceedings, (b) fraud investigations, (c) corporate restructurings, (d) insolvencies, (e) regulatory enforcement actions, (f) financial reporting, and finally, (g) in the context of money laundering investigations regarding the proceeds of crimes and otherwise legitimate businesses, such as financial institutions.

Auditors occupy the unique position within this process. They are often the first independent professionals to comprehensively review a company’s financial condition. The auditors’ responsibilities include (1) evaluating internal controls, (2) assessing financial reporting risks, (3) examining asset valuations, and (4) identifying indicators of impairment or misstatement.

When auditors properly execute these responsibilities, they help detect (1) hidden risks, (2) overvalued assets, (3) related-party transactions, or (4) control weaknesses that threaten recoverability.

Recoverability assessments are specifically designed to determine whether assets can generate sufficient future economic benefits to justify their carrying values.

However, auditors can contribute to recoverability failures in several ways.

First, when I taught the basic audit course as a young lecturer in an accountancy department, I stressed that auditors should not place excessive reliance on management representations.

Asset recovery often depends on understanding the true nature and location of assets. Management may possess information that auditors cannot independently verify without considerable effort. If auditors fail to exercise sufficient professional skepticism, assets may be: (a) incorrectly classified, (b) concealed through complex corporate structures, or (c) valued using unrealistic assumptions.

Recoverability evaluations depend heavily on management estimates and forecasts, making independent challenges particularly important.

Second, auditors can underestimate the significance of contextual factors affecting asset value and recoverability. An asset’s recoverable value is rarely determined by its book value alone. Recoverability depends on market conditions, legal rights, competing claims, liquidity constraints, technological obsolescence, and future cash-generating ability. FASB accounting guidance emphasizes that assessing recoverability requires analyzing future cash flows and triggering events that may indicate impairment.

Third, auditors may be constrained by the scope of their engagement.

External auditors are not forensic investigators. Their objective is to provide reasonable assurance regarding financial statements, not to perform exhaustive asset-tracing exercises. As a result, sophisticated fraud schemes involving offshore structures, layered ownership arrangements, trusts, shell companies, cryptocurrency holdings, or cross-border transactions can remain undetected.

BUT when such assets later become the subject of recovery actions, investigators often discover that key warning signs were overlooked or insufficiently explored. However, I caution that it would be unfair to place primary blame on auditors. Many of the most significant barriers to asset recovery originate elsewhere.

Modern assets are becoming increasingly difficult to identify and understand. Traditionally, assets consisted of physical property, inventory, equipment, and financial accounts.

Today, organizations derive value from (a) intellectual property, (b) software, (c) algorithms, (d) digital platforms, (e) customer data, (f) cryptocurrencies, (g) tokenized assets, and (h) complex financial instruments.

The challenge is no longer simply finding an asset. It is understanding what the asset actually is, who controls it, what legal rights attach to it, and whether it possesses recoverable value.

This brings us to the critical issue of contextual factors.

Assets rarely exist in isolation. Consider intellectual property. Its recoverability depends on (a) enforceability, (b) licensing arrangements, (c) jurisdictional protections, (d) market demand, and (e) technological relevance. A patent worth hundreds of millions of dollars today may become virtually worthless tomorrow if a superior technology emerges.

Similarly, accounts receivable may appear valuable on a balance sheet, but their recoverability depends on (a) customer creditworthiness and (b) economic conditions. Guidance on revenue-cycle assets highlights how economic uncertainty can impair receivables, inventories, and contract assets, requiring significant judgment regarding future collectability and value.

Real estate presents another example. A property may have substantial appraised value, yet environmental liabilities, zoning restrictions, litigation risks, or illiquid market conditions can dramatically reduce recoverability. The same principle applies to distressed business assets whose value depends on future cash flows rather than historical cost. Recoverability testing under U.S. accounting standards specifically focuses on expected future cash generation rather than merely recorded amounts.

The challenge therefore extends beyond identification. Effective asset recovery requires a multidimensional understanding of value. Auditors, recovery professionals, attorneys, valuation experts, and regulators must all evaluate legal, operational, technological, financial, and market considerations simultaneously. Failure in any one of these areas can undermine recovery efforts.

From a U.S. governance perspective, the most effective approach is not to assign blame solely to auditors but to recognize that recoverability is a shared responsibility.

Auditors MUST strengthen (1) professional skepticism, (2) improve expertise in complex asset structures, (3) utilize advanced data analytics and especially AI, and (4) engage specialists when necessary.

Organizations should maintain stronger internal controls and asset-tracking systems – and auditors should be professionally accountable for having tested such systems.

For their part, regulators should encourage transparency and disclosure practices that make assets easier to identify and evaluate.

In conclusion, auditors can indeed contribute to failures in effective and efficient asset recovery when they fail to challenge assumptions, overlook warning signs, or inadequately assess recoverability risks. However, they are only one part of a much broader ecosystem. The growing complexity of modern assets, combined with the need to understand their legal, economic, and operational context, creates challenges that extend well beyond traditional auditing.

Ultimately, successful asset recovery depends on two fundamental capabilities: accurately identifying assets and deeply understanding the contextual factors that determine their recoverable value. Auditors have an important role in that process, but achieving effective recovery requires coordinated efforts among management, auditors, regulators, investigators, legal professionals, and valuation specialists.

Thank you, and I look forward to joining you at the college bar tonight after the dinner speeches.