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The auditor has no responsibility towards "detecting" fraud. The purpose of the audit is to determine whether the AFS present fairly in all material aspects of the financial position and performance of the business. Keeping this in mind, the responsibility which falls onto the auditor is to reduce the risk of fraud in the AFS to an acceptably low level, meaning the auditor needs to consider the risk of material misstatement in the AFS due to fraud when planning and performing the audit. Where there is a high risk of fraud, the audit procedures carried out should be extensive in order to reduce the risk. As long as the auditor complies to the International Standards on Auditing and performs his/her work with due diligence and independence, the auditors responsibilities are satisfied.
It is not an auditor's primary responsibility to detect fraud, however detection of fraud is the by-product of Audit.
If fraud is detected, auditor's responsibility is to report it to management or to higher authority. If error is detected, auditor responsibility is to correct it.
Reporting and detecting fraud.. agree with experts answers
My answer is based on External Auditor perspective.
In accordance with International Standard on Auditing ISA-240 Fraud is intentional/deliberate while errors are unintentional actions that cause a misstatement in the financial statements.
As per ISA-240 the primary responsibility for prevention and detection of fraud rests with both those charged with governance of the entity and management.
An auditor conducting audit in accordance with ISAs is responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement whether due to fraud or error. As per ISA-240 Auditor is required to:
(a) To identify and assess the risks of material misstatement of the financial statements due to fraud;
(b) To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and
(c) To respond appropriately to fraud or suspected fraud identified during the audit.
When the auditor has obtained audit evidence that fraud exist or may exist, it is important that the matter may be brought to the attention of appropriate level of management.
The auditor shall maintain professional skepticism throughout the audit, recognizing the possibility that a material misstatement may exist whether due to fraud or error.
detection of error and fraud is the primary responsibilty of management and it shuld be discussed with management before audit . auditor needs to apply detailed procedures and in case of error or fraud auditor should asked management to correct it.
The auditor’s responsibility is to plan the audit to obtain reasonable (not absolute) assurance that material misstatements, individually or in the aggregate, in the financial statements are detected. The auditor has no responsibility to detect misstatements whether caused by error or fraud that are not material to the financial statements.
Management and those charged with governance in an entity are primarily responsible for preventing and detecting fraud. It is up to them to put a strong emphasis within the company on fraud prevention.
Auditors are responsible for carrying out an audit in accordance with international auditing standards one of which is ISA two hundred and forty The auditor's responsibility to consider fraud in an audit of financial statements. According the standard, in planning and performing the audit to reduce audit risk to an acceptably low level, the auditor should consider the risks of material misstatements in the financial statements due to fraud.
An overriding requirement of the ISA is that auditors are aware of the possibility of there being misstatements due to fraud.
It is important to note that auditors do not have the responsibility to prevent and detect fraud, but must consider whether it has caused misstatements in the financial statements.
Auditor don't have any responsibility for detection of frauds and errors. Its the management responsibility. Auditor responsibility is just to provide independant opinion over the true and fair view of financial statements.
But during Audit, if auditor detect any fraud or error, it should be communicated to management.
It is very important to differentiate between the External auditor and the internal one;
For the external Auditor, we should know that the deducting the fraud is out of the responsibility of the External Auditor. The preventing controls of fraud as well as the corrective controls is the main responsibilities of the management of the firm.
Management is to collect the data and prepare the needed financial statements that contain all financial information needed and should be presented fairly according to the Slandered, whatever local, GAAP or IFRS, and the external auditor role is to make sure it is according to these Slandered.
For the internal Auditor, and as we know that internal auditor is a part of the management itself, then He/ She is really responsible to do His/Her best effort to detect the fraud.
I assume you mean external auditors before answering this question.
It's not auditors' primary responsibility to detect frauds and errors. Management has primary responsibilities for that. Auditors are responsible to obtain reasonable assurance on whether financial statements of a company as a whole are free from material misstatement whether due to frauds or errors. Hence, one way or other both auditors and entity are responsible for detection of frauds and errors.
Auditors shall apply professional skepticism while performing the audit engagement. They also shall perform risk assessment procedures for the identification of material misstatement due to fraud and errors.
Hence, although management has primary responsibility auditors also have secondary responsibility for the detection of frauds and errors.
References are considered responsible for the discovery of errors and fraud of the controversial things in the business community. Several studies have been conducted about that concluded that the auditors they should:
1. discover all fraud cases important.
2. carry out the review process in a manner leading to the discovery of all cases of fraud and error.
3. assume greater responsibilities to discover the error and fraud. Because the community expects them to discover all error and fraud cases during the audit.
- As well as multiple studies have professional organizations, led by the American Society of Certified Public Accountants issued a set of professional flyers about the responsibility of the references for error and fraud was discovered. These releases are:
ü audit procedures No. 1 Bulletin:
It issued in the late thirties of the twentieth century. She explained that the auditor plan review process in order to express an opinion on the fairness of financial reporting, not to detect errors and fraud in it. And that error and fraud discovery process is not considered a primary goal of the review. However, this publication did not succeed in convincing the beneficiaries of financial reports so.
ü audit procedures Bulletin No. 30 in 1960:
This bulletin has included the following:
1. References should be cautious and aware of the possibility of error and fraud in financial reporting.
2. If the references discovered during the audit process and the existence of other things raises doubts about the existence of an error or fraud lead to a material misstatement in the financial statements, he should contact one of the representatives of the entity under review to determine who was responsible for that error, fraud and identify Mekdaarhama accurately.
3. References depends when determining the nature of the basic tests, timing and extent of the internal control system. Thus, the administration is responsible for the design of an effective system of internal control.
4. carry this bulletin references liability accounts error and fraud and did not discover the expansion of its responsibility in relation to that.
This bulletin does not succeed in achieving the goal of the issued and to increasing cases of litigation against auditors for failing to detect fraud and error and ignore the courts limited the responsibilities of auditors according to this bulletin.
ü Auditing Standards Bulletin No. 16 of 1977:
This publication focused on the following:
1. distinguish between deliberate distortion and unintentional in the financial reports.
2. stressed the need to develop a plan for review by the auditor take into account the important search for the error and irregularities.
3. References responsibility identified for error and irregularities up to the sample, which is reviewed by the discovery.
4. References can not rely on the system of internal controls to prevent fraud. Because this system can be bypassed by management.
This bulletin has not received general acceptance for users of financial reports because they expected expansion in the responsibility of the references in error and fraud discovery and not just search for them. The expressions used in this newsletter was vague and did not provide enough guidance for the auditors. And therefore did not meet the needs of the accounting profession or business community.
ü revision No. 53 of 1988 Standards Bulletin:
This bulletin has adopted a positive entrance instead of a defensive character, who was in previous releases. Where a group points explained the auditor taken into account, namely:
1. Planning the audit can be references to provide confirmation of a reasonable degree of detecting errors.
2. exercise an appropriate degree of professional skepticism to detect errors and irregularities.
3. evaluate the risks the possibility of errors or irregularities may lead to the preparation of misleading financial reports.
4. evaluate the possibility of misleading financial reports and distorted by management. By studying the following matters:
a. Failure to follow generally accepted accounting principles.
B. Not to answer all inquiries references.
C. Failure of management in the policies necessary to provide reasonable emphasis on the safety of accounting estimates and procedures.
5. into account when assessing audit risk associated with assurances regarding account balances following factors:
a. The extent of the vulnerability of assets for embezzlement.
B. The efficiency of persons engaged in the operation of moving the data in the account balances and processed.
C. The impact of personal judgment in determining account balances.
Dr.. The impact hazards assist in the evaluation of the review on the level of financial reporting account balances risk factors.
e. The amount of components of the account balances, size and vocabulary elements.
This bulletin does not succeed in achieving the goal of the issued and because it did not give a clear explanation of the meaning is certainly reasonable and appropriate degree of skepticism, and also did not provide guidance on the relative importance of the factors that should References
To take into account when assessing the risk of distortions. Proof of this is the increasing incidence of litigation against auditors and the continuation of the expectations gap regarding the responsibility for the error and fraud was discovered.
ü Auditing Standards Bulletin No. 82 of 1997:
1. ensure this standard for the first time the word fraud Unlike previous standards. The distinction between the two types of fraud:
a. Prepare fraudulent financial report.
B. Misuse of assets,
2. ensure the set of Guidelines to increase the attention of reviewers out fraud while carrying out an audit.
3. liability standard references for the discovery of fraud but has not explained expands this responsibility.
4. ensure the standard list of factors that should be on the references taken into account when evaluating the risk of fraud and classified in groups related to:
a. Management and impact properties in the control environment. "Related to the capabilities of management and the pressures and the pattern and trend-related internal control and financial reporting process. Examples of risk factors:
N and the presence of an incentive for management involvement in the financial report misleading.
N having failed to manage the supply and delivery of appropriate direction regarding internal controls and financial reporting.
N having a high turnover of senior management or advisors or the Governing Council. "
B. Industry conditions. "Related to the economic environment and the regulatory environment in which they operate the facility. Examples of risk factors:
N existence of accounting, legal and regulatory requirements can weaken the financial stability and profitability.
N industry decline with increasing failure of the project and a substantial decline in consumer demand.
N rapid changes in the industry. "
C. Operating and financial stability properties. "Relating to the nature and complexity of the facility and its operations, profitability and financial condition. Examples of risk factors:
N substantial pressure to obtain additional capital necessary to stay in a competition.
N operations substantial unusual and highly complex.
N difficult organizational structure that explicitly includes a large number of the many unusual legal entities without clear objectives to work.
Benchmark ambitions of the business community with regard to the responsibility of the references did not meet because it did not lead to the expansion of the responsibilities of the references for the discovery of errors and fraud physical processes, but provided guidance range to increase attention to the process of fraud during the audit by the auditor.
ü revision No. 99 of 2002 Standards Bulletin:
1. interested in the standard description of manipulation, fraud and _khasaisma and their relationship to financial reporting under review.
2. explained the nature of the communication between the auditor and management of the facility under review and his style.
3. the importance of exercise professional skepticism in the planning and implementation of the review process.
4. explained how to obtain the necessary to learn about the dangers of reporting incorrect financial reports with a view to manipulation and fraud information.
5. the importance of communication between audit teams about the dangers of reporting incorrect financial reports with a view to manipulation and fraud.
6. Display the procedures to be performed by the auditor in the case of the discovery of some manipulation and fraud.
7. identify dangerous sites, which can be the result of reporting incorrect financial reports with a view to manipulation and fraud.
8. explained how mistakes by references calendar after taking into account the evaluation and examination of internal control systems.
9. explained the duties of the references with respect to the assessment of the evidence and the evidence that would confirm the audit opinion.
