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Please find the answer as below:
As regards the Auditors Responsbility:
1) The Auditor is primarily not responsible for the detection of Fraud.
2) As per the ISA 240 on Auditors Responsibility to detect Frauds in the Financial Statements, The Primary responsibility lies with those charged with Governance in the Reporting Enterprise. It is they who need to frame a mechanism to detect and prevent the fraud in the enterprise.
3) The Auditors responsibility is to form a reasonable assurance that the Financial statements are free from Misstatements.
Coming to how an auditor can stop person or entitty to commit fraud:
1) The Auditor applies his audit procedures to ensure those are sufficient to cover
a) Inherent risk
b) Detection risk and
c) Control risk
2) After ensuring the sufficient coverage of the above risk factors in audit, the Auditor has to report the identified fraud to the appointing authority.
- In Case the auuditor is appointed by the Management - It shall be the Managment.
- In case appointed by the Shareholders - It shall be the shareholders.
- In Case by Nominee directors - It shall be the nominee directors.
Since, Audit in broad perspective means the Statutory Audit, the Auditor is responsible to report the shareholders as they happen to be the appointing authorities of the Auditors except int he case of First Auditor.
3) if You are working in the Indian Environment, You can note that the New Companies Act 2013 has emphasized more role forthe Auditor in detection and reporting of the Fraud by the Auditors. Section 143(12) has even required the Auditors to report the Frauds committed by those charged with the Governance to the Central Government.
