Should auditors be held more accountable in uncovering financial fraud
Should auditors be held more accountable in uncovering financial fraud?
Table of Contents
Introduction
Currently in the United States, the American Institute of Certified Public Accountants (AICPA) the International Auditing and Assurance Board (IAASB) are the most influential accounting standard boards able to influence fraud detection standard setting in financial reporting. In recent years, there has been a growing trend in financial scandals such as WorldCom, Enron and Madoff that have forever changed the world of financial reporting. These frauds beg the question as to whom to blame. This major issue is what inspired us to come up with the question of: “Should auditors be held more accountable in uncovering financial reporting fraud?”
Though fraud is done by very few people at once, it can represent huge monetary amounts. According to fraud research center, in 2013 alone, eight billion dollars in fraud of investments, securities and commodities will arise. Another alarming fact is that 45% of auditing companies fail to uncover and report fraudulent activity. (Grazioli, Jamal, & Johnson, 2006, p.34) Our research will intend on shedding some light on this matter and explore a variety of possibilities.
In order to answer this question, we must take into consideration many aspects. The first aspect we will be discussing will be based on the techniques of internal, external and forensic accountants available in detecting fraud and their role in preventing it. The second aspect of this report will discuss if auditors should in fact be held accountable. This part will include recent court decision and a brief cost-benefit analysis of the feasibility in having auditors more accountable. And last, a conclusion based on facts and our report.
Accountable Parties
External Auditors
In most cases, there is a great deal of information asymmetry between the issuers of financial statements and users. Lenders, shareholders, employees, vendors and
Table of Contents
Introduction
Currently in the United States, the American Institute of Certified Public Accountants (AICPA) the International Auditing and Assurance Board (IAASB) are the most influential accounting standard boards able to influence fraud detection standard setting in financial reporting. In recent years, there has been a growing trend in financial scandals such as WorldCom, Enron and Madoff that have forever changed the world of financial reporting. These frauds beg the question as to whom to blame. This major issue is what inspired us to come up with the question of: “Should auditors be held more accountable in uncovering financial reporting fraud?”
Though fraud is done by very few people at once, it can represent huge monetary amounts. According to fraud research center, in 2013 alone, eight billion dollars in fraud of investments, securities and commodities will arise. Another alarming fact is that 45% of auditing companies fail to uncover and report fraudulent activity. (Grazioli, Jamal, & Johnson, 2006, p.34) Our research will intend on shedding some light on this matter and explore a variety of possibilities.
In order to answer this question, we must take into consideration many aspects. The first aspect we will be discussing will be based on the techniques of internal, external and forensic accountants available in detecting fraud and their role in preventing it. The second aspect of this report will discuss if auditors should in fact be held accountable. This part will include recent court decision and a brief cost-benefit analysis of the feasibility in having auditors more accountable. And last, a conclusion based on facts and our report.
Accountable Parties
External Auditors
In most cases, there is a great deal of information asymmetry between the issuers of financial statements and users. Lenders, shareholders, employees, vendors and
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