How do you incentivize "produce less goods/generate less profit"[1]? That's a genuine question. We can barely
de-incentivize flat-out criminal behavior. The line between malice and negligence is a tenuous at best. DA's feel
lucky when they get a Grand Jury to indict which almost always results in a plea bargain being offered by the State, accepted by the indicted, and stamped on through by the Judge hearing the case.
Auditors were supposed to make sure books were GAAP-compliant. That was their entire job. Even they can't/won't keep up (RIP Arthur Anderson). And that whole "you have to file an 8-K with teh SECevery 3 months with the SEC" is limited to publicly traded financial institutions within the United States[2].
To make an analogy, the law can barely keep up with tech (see: amorphous definitions of 'data collection', 'meta-data', is your cryptographic keyphrase protected as a fifth amendment right, is PGP a "munition"?[3]). Financial markets are innovating at just as quickly a rate as we are.
So, in a modern day, how do we prevent 'cooking the books'? I assert that the problem is lack of transparency. Here's an idea that probably has many major issues as I haven't ruminated on it at all, but let me give it a shot: require all transaction data[4] to be independently audited by any stakeholder at any time. As a stakeholder who is keeping my retirement money with this institution I'm highly motivated to ensure that whoever is managing my money is doing so in what I deem to be a proper fashion. Access to their books (obviously with the account information/PII scrubbed), maybe after a business week of buffer time (to allow for some padding for any tactical content that may be in the current positions) should be perhaps be made available.
My second assertion is this will not only keeps the institution obligated to be 'honest' with their reporting as obligated to their stakeholders, but has an auxiliary benefit of incentivizing their competitors to act as very motivated auditors as they scrutinize their competitors books to uncover any malfeasance.
Since regulatory bodies can't keep up, _ensure that all actors within the market actively keep each other honest_. Sure, they can collude but collusion is far easier to detect and prosecute than internal book manipulation.
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[1] Subsidizes to under-produce (big agri. and the like) notwithstanding
[2] There's nothing preventing a pension fund to go take all of GM's money and put it into a private hedge fund, throwing tons of money at a PE firm, becoming a large stake holder in a real estate investment group, or throw their money into any sort of 'unconventional financial entity'. None of these have public reporting obligations, and their federal obligations are limited to tax entities ,co-operating with FINRA, and (if they are using instruments which fall under the regulatory domain of the SEC, then also) the SEC.
[3] https://en.wikipedia.org/wiki/Export_of_cryptography_from_th...
[4] Both internal and external-- you can do a lot with cost center accounting between arms of an MNC to misrepresent things