The Responsibility of the External Auditor and the Management of the Entity Being Audited with Relation Fraud and Error.

Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s

2 Managing fraud risk: The audit committee perspective Fraud in a fi nancial statement audit

The word “fraud” was magnified in the business world around the end of 2001 and the beginning of 2002. No one had seen anything like it. Enron, one of the country’s largest energy companies, went bankrupt and took down with it Arthur Andersen, one of the five largest audit and accounting firms in the world. Enron was followed by other accounting scandals such as WorldCom, Tyco, Freddie Mac, and HealthSouth, yet Enron will always be remembered as one of the worst corporate accounting scandals of all time. Enron’s collapse was brought upon by the greed of its corporate hierarchy and how it preyed upon its faithful stockholders and employees who invested so much of their time and money into the company. Enron seemed to portray that the goal of corporate America was to drive up stock prices and get to the peak of the financial mountain by any means necessary. The “Conspiracy of Fools” is a tale of power, crony capitalism, and company greed that lead Enron down the dark road of corporate America.

Unfortunately, all those efforts have not been vindicated because of the following reasons: Accounting did not cause the recent corporate scandals such as Enron and WorldCom. Unreliable financial statements were the results of management decisions, fraudulent or otherwise. To blame management’s misdeeds on fraudulent financial statements casts accountants as the scapegoats and misses the real issue. Reliable financial reports rely to a certain extent on effective internal controls, but effective internal controls rely to a large extent on a reliable management system coupled with strong corporate governance. when management deliberately or even unlawfully manipulates business processes in order to achieve desirable financial goals and present untruthful financial reports to the public, accounting systems are abused and victims rather than perpetrators.

Fraud deterrence occurs in several stages, and the key is to know that prevention is not to same as deterrence. First is the impact of controls

During the late 1990s and early 2000s, several companies like Enron, WorldCom, Adelphia, Global Crossing and Tyco, just to name a few, were embroiled in corporate fraud, greed and manipulation. These businesses were intentionally deceiving the public, their investors and even their employees. Company executives were hiding company expenses and liabilities, misreporting company finances in order to increase stock prices. External audit agencies that were hired to examine and certify financial statements for accuracy, were basically

In examining the standards of ethics, or lack thereof, in cases of corporate fraud there are key questions to consider. These questions relate to ethics, the fraud triangle, and the legal ramifications incurred. It is important to examine the elements related to these key questions, in order to gain an understanding of the impacts fraud has upon all parties involved. This handbook provides information to gain an understanding of what ethical violations are at play and the impacts upon all involved parties resulting from those violations. Further provided is information regarding ethical issues when an awareness of the fraud is known, and what the reactions should be by the

No company wants to be expose to acts of accounting fraud. Fraud can take place in any department and at any position within the organization due to the increasing motivations such as incentives, pressures, and opportunities are major factors contributing to fraud. The following are a few types of accounting frauds: payroll fraud, invoice fraud, accounts payable fraud, accounts receivable fraud, financial statement fraud, and tax fraud. An external financial statement audit does not necessarily guarantee that once it is completed that the audited company has no type of fraud but it reassures the audited company that the financial statements are fairly

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,

Ethical and legal obligations apply to all members of society. As one in society, the obligation to act in an ethical, law abiding manner on a daily basis is vital to the integrity of daily life. Many professions have their own code of ethics. Financial reporting is not exempt from such ethical and legal standards. One’s lively hood depends on decisions made in the business world. Business transactions are done daily and can impact one’s economic stability. Trust is placed in the hands of corporate America and an obligation of financial reporting to reveal a complete honest and legal picture of an entity’s accounting practices is important in attaining trust. This paper will discuss the obligations of

In society, there have always been differing characteristics such as failure and fraud that have been linked through time. However, although failure and fraud are connected in several various ways, one tends to come before the other. Generally failure is the absence of achieving success and fraud is committing an unlawful act that is driven by failure or to result in failure. Failure has driven fraud for countless reasons either for financial prosperity or personal supremacy. In many cases the direction of failure and fraud is mainly subjected to the individual’s personal objective. Conversely, there have been many situations in which corporations too big to fail have succumbed to failure and fraud due to a destructive corporate objective. In 2001, Enron, the seventh largest company in the U.S participated in fraudulent activity. The fraudulent activity committed by Enron was the beginning of an inevitable ripple of failure in the company’s future. Although Enron performed the major scandal, the auditing agency Arthur Andersen was highly responsible for their negligence and their participation in the deception of the financial investors. The general public didn 't easily predict the downfall of Enron because it was one of the most thriving establishments in the corporate world. In many cases, companies as substantial as Enron are sometimes used as a measurement to gauge how the economy is preforming in the current market. The financial fraud

The purpose of this research is to analyze the cause-effect relationships between the auditor’s role and fraudulent reporting.

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.

The Accounting and Auditing Organization for Islamic Financial Institutions established on Safar 1, 1410 Hijri (February 26, 1990) at Algiers and registered in Bahrain on Ramadan 11, 1411 Hijri (March 27, 1991) has so far (April, 2004) set the following Financial Accounting Standards, Auditing Standards, Governance Standards & Code of Ethics for Accountants & Auditors of Islamic Financial Institutions: