Auditor’s Responsibilities in Fraud and Error Detection
Auditor’s Responsibilities in Fraud and Error Detection
Auditing
October 17, 2011
Auditor’s Responsibilities in Fraud and Error Detection
In recent years, scandals such as Enron and WorldCom have not only brought up the question “Where were the auditors?,” but have also brought to our nation’s attention that auditing of public companies must be done with more precision and must have guidelines on the proper way to account for different items. Fraud, illegal acts, and errors happen every day and it is the auditor’s responsibility to find these mistakes and fraudulent accounting in order to make a qualified opinion. The government has helped by setting guidelines in the Sarbanes-Oxley Act of 2002 and the PCAOB (Public Companies Accounting Oversight Board) has set auditing guidelines to help auditors uncover these acts. An error in the income statement could sway the opinions of shareholders and frauds that are not detected could cost shareholders and our economy millions of dollars. Auditors have a big responsibility in detecting errors, fraud, and illegal acts not only to help our economy prosper, but also because it is a guideline of their job, which is due professional care. The AICPA (American Institute of Certified Public Accountants) develops a set of rules and guidelines called the Statement of Auditing Standards (SAS) to help auditors make qualified opinions the shareholders can trust. SAS 82 and 99 define fraud as an intentional act that results in a material misstatement in the financial statements. The auditing team must have meetings before beginning and audit so senior auditors have a chance to share their experiences and tips to detecting fraud with their entry level auditors. This also gives the auditing team a chance to plan ahead for their audit and provide guidelines in detecting fraud. The Sarbanes-Oxley Act (SOX) has two titles detailing fraud, titles viii and xi, both outlining the penalties to fraud, destruction of evidence, and
Auditing
October 17, 2011
Auditor’s Responsibilities in Fraud and Error Detection
In recent years, scandals such as Enron and WorldCom have not only brought up the question “Where were the auditors?,” but have also brought to our nation’s attention that auditing of public companies must be done with more precision and must have guidelines on the proper way to account for different items. Fraud, illegal acts, and errors happen every day and it is the auditor’s responsibility to find these mistakes and fraudulent accounting in order to make a qualified opinion. The government has helped by setting guidelines in the Sarbanes-Oxley Act of 2002 and the PCAOB (Public Companies Accounting Oversight Board) has set auditing guidelines to help auditors uncover these acts. An error in the income statement could sway the opinions of shareholders and frauds that are not detected could cost shareholders and our economy millions of dollars. Auditors have a big responsibility in detecting errors, fraud, and illegal acts not only to help our economy prosper, but also because it is a guideline of their job, which is due professional care. The AICPA (American Institute of Certified Public Accountants) develops a set of rules and guidelines called the Statement of Auditing Standards (SAS) to help auditors make qualified opinions the shareholders can trust. SAS 82 and 99 define fraud as an intentional act that results in a material misstatement in the financial statements. The auditing team must have meetings before beginning and audit so senior auditors have a chance to share their experiences and tips to detecting fraud with their entry level auditors. This also gives the auditing team a chance to plan ahead for their audit and provide guidelines in detecting fraud. The Sarbanes-Oxley Act (SOX) has two titles detailing fraud, titles viii and xi, both outlining the penalties to fraud, destruction of evidence, and
Cited: Apostolou, Nick, and Larry Crumbley. "Auditors’ Responsibilities with Respect to Fraud: A Possible Shift?" The CPA Journal (February 2008). Web. <http://www.nysscpa.org/cpajournal/2008/208/essentials/p32.htm>. Bostick, Lisa, and Michael Luehlfing. "Auditors’ Responsibilities Formalized Under SAS 109." The CPA Journal (February 2007). Web. <http://www.nysscpa.org/cpajournal/2007/207/essentials/p23.htm>. Hoffmann, Melissa. "KPMG Blamed For Subprime Audit Failure." Web log post. CPA Blog, 3 Apr. 2009. Web. <http://www.nysscpa.org/blog/2009/4/3/kpmg-blamed-subprime-audit-failure>.