The Auditors ' Responsibility For The Detection Of Fraud

1. The three aspects of fraud - Perceived pressure, Rationalization, and Opportunity were present in the CIT case as follows:

For purposes of the Statement, fraud is an intentional act that results in a material

Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress

After the Enron debacle the responsibility of auditors shifted more towards fraud detection as the scandal highlighted the lack in auditing process with regards to fraud prevention since auditors were partaking in the fabrication and falsification of accounting statement. Thus auditors legitimized the falsified financial statement whether through inaptitude to properly conduct their work or conflict of interest between management and auditors. To sum this view it is important to keep in mind that researching misrepresentation within financial statement only became recently part of the auditor’s legal obligation.

The Model of Trust Enhancement was established to enhance and maintain the public’s trust in the accounting profession. Over the last two decades, the ethics of the accounting profession has been questioned and public trust destabilized, in particular for auditors, due to the Enron debacle. The fact that an auditing firm would assist their clients with publishing an inadequate set of financial statements shows their willingness to violate laws and regulations (Sims & Brinkmann, 2003). According to the textbook, “Because trust is essential, even the appearance of an accountant’s honesty and integrity is important. The auditor, therefore, must not only be trustworthy, but he or she must also appear trustworthy” (Duska, Duska & Ragatz, 2011, p. 116). The majority of statements filed inadequately have a substantial impact on the credibility of the accounting profession as a whole. Sullivan (n.d.10) states that a CPA must possess a high level of trust, by applying professional judgment and enhancing the three trustworthy characteristics (ability, benevolence, and integrity) when resolving accounting ethics dilemmas (slide 3).

A fraud perpetrator must also have a perceived opportunity or they will not commit fraud. Even with intense perceived pressures, where there is the belief that fraud is typically caught and punished, and an executive rarely commits fraud. On the other hand, those executives who believe they have the opportunity, to commit and successfully conceal fraud, often give in to perceived pressures. Perceived opportunities to commit management fraud include such factors as a

An auditor’s role in an audit is very important. An auditor must be able to collect enough evidence to supports their finding, and also be on the lookout for fraud. Company’s may or may not know the law, but it is the job to know the law, and be able to educate and report findings properly. Since the Sarbanes-Oxley Act, there have been provisions that have directly affected auditors. This paper will include the details of the Sarbanes-Oxley Act, how ethics and independence have affected auditors, as well implementation of new standards based on the Sarbanes-Oxley Act.

Hogan, Rezaee, Riley, and Velury (2008) noted the development of the auditing standards created due to the financial scandals that have occurred over the years. However, the authors note even with the development of SOX and SAS No. 99 there still does not appear to be a decline in financial statement fraud (232).

There are numerous threats to the independence of auditors which have been identified in the multiple studies and discussions both in Australia (such as the Ramsay report, CLERP 9 Paper) and internationally by IFAC, the European Commission

The services provided by auditors can have a far-reaching influence. For many years, investors have relied on audited financial statements to make sound investment decisions. Thus, auditors are obliged to protect the interests of investors, taking on the role of gatekeepers (Kane, 2004). In recent years, countries around the world have witnessed examples of corporate fraud. The Sarbanes-Oxley Act, passed by the US Congress in the wake of such scandals, is considered the most influential act with the greatest impact on auditing professionals. This is an example of a government’s attempt to halt corporate fraud by improving corporate governance and strengthening the function of auditing, as a means to restore trust. However, quality and integrity

Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

With the avalanche of accounting scandals that have rocked the public, people tend to have increasingly high expectation that auditors are accountable for detecting all frauds, while the standards require auditors to provide reasonable, but not absolute, assurance. The purpose of the report is to discuss the accountability of auditors in detecting fraud by analysing a $16.9 million fraud of Otago District Health Board (ODHB) perpetrated by Swann and Harford from 2000 to 2006. The report will explain the event, the fraud, the stakeholders, the role of auditors and the current situation.

In the mid1980s, the National Commission on Fraudulent Financial Reporting or the Treadway Commission detailed how financial frauds could be curtailed or prevented and how auditors could minimize the “expectations gap” amongst themselves and the public. In addition, the peer review program became compulsory, as instructed by AICPA. Meanwhile, the AICPA Special Committee on

They concluded that although auditors were not totally responsible for the scandals in 2000 and beyond, “all too many independent auditors lost their autonomy and judgment- and ended by blurring the line between right and wrong.” They described the audit as becoming a “commodity with little intrinsic value,” used to facilitate management’s objective of releasing misleading financial statements. , and concluded that accounting self-regulation had failed in these instances.

The auditor also obtained an understanding of the business and its environment in order to assess the risk of material misstatement. ISA 310 requires a reasonable understanding of the client’s business and industry. The nature of the client’s business and industry affects the client business risk and the risk of material misstatements in the financial statements. The auditor used the knowledge of these risks to determine the appropriate amount of audit evidence gathered. The auditor through experience is aware of the exposure to problems resulting from the auditor’s failure to understand comprehensively the nature of transactions in the client’s business. The understanding helped the auditor to evaluate the design and implementation of specific controls that could stop or discover and rectify material