Fraud detection
How the Fraudsters Fool the Auditors
History of financial statement frauds
acquisition accounting related party transactions
non existent bank accounts
- relationship with auditors overstated bank balance off balance sheet accounting
misleading disclosures Changes occurring from Sarbanes Oxley
Higher standards for corporate governance and accountability Creating an independent regulatory framework for the accounting profession
Enhancing the quality and transparency of financial reports Developing severe civil and criminal penalties for corporate wrongdoers
Establishing new protections for corporate whistleblowers
PCAOB established by SOX
Registering public accounting firms that audit publicly traded companies
Establishing or adopting auditing, quality control, ethics, independence, and other standards relating to audits of publicly traded companies
Investigating registered public accounting firms and their employees, conducting disciplinary hearings, and imposing sanctions where justified
Enforcing compliance with the Sarbanes-Oxley Act, the rules, the rules of the Board, professional standards, and securities laws relating to public company audits
What is the auditors responsibility?
SAS 99 - Consideration of Fraud in a Financial
Statement Audit
“The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.”
But despite the improvements, there remain fundamental flaws and external audits still frequently fail to uncover substantial financial statement frauds…
What % of fraud do auditors prevent?
What % of frauds do auditors detect?1
Other
1.1
IT Controls
1.1
Confession
1.5
Surveillance/Monitoring
1.9
Notified by Police
3
External Audit
3.3
Document Examination
4.1
Account Reconciliation
4.8
By Accident
7
Internal Audit
14.4
Management Review
14.6
Tip
43.3
Percent of Cases
1ACFE
History of financial statement frauds
acquisition accounting related party transactions
non existent bank accounts
- relationship with auditors overstated bank balance off balance sheet accounting
misleading disclosures Changes occurring from Sarbanes Oxley
Higher standards for corporate governance and accountability Creating an independent regulatory framework for the accounting profession
Enhancing the quality and transparency of financial reports Developing severe civil and criminal penalties for corporate wrongdoers
Establishing new protections for corporate whistleblowers
PCAOB established by SOX
Registering public accounting firms that audit publicly traded companies
Establishing or adopting auditing, quality control, ethics, independence, and other standards relating to audits of publicly traded companies
Investigating registered public accounting firms and their employees, conducting disciplinary hearings, and imposing sanctions where justified
Enforcing compliance with the Sarbanes-Oxley Act, the rules, the rules of the Board, professional standards, and securities laws relating to public company audits
What is the auditors responsibility?
SAS 99 - Consideration of Fraud in a Financial
Statement Audit
“The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.”
But despite the improvements, there remain fundamental flaws and external audits still frequently fail to uncover substantial financial statement frauds…
What % of fraud do auditors prevent?
What % of frauds do auditors detect?1
Other
1.1
IT Controls
1.1
Confession
1.5
Surveillance/Monitoring
1.9
Notified by Police
3
External Audit
3.3
Document Examination
4.1
Account Reconciliation
4.8
By Accident
7
Internal Audit
14.4
Management Review
14.6
Tip
43.3
Percent of Cases
1ACFE