What Management and Auditors Can Do to Help Prevent Fraud, Errors and Illegal Acts

CAS 300 requires auditors to their audit using a risk based model where the nature, timing and extent of audit procedures are based on the assessed risk of material misstatement. Pickett (2006) argues that for audits to be effective and efficient, much of the audit effort should be focused on areas that are considered to pose the highest audit risk. Additional audit procedures should be linked to individual audit assertions whereas other audit procedures need to be performed as and when needed. Thus, for an audit plan to be put in place, it is necessary for an auditor to come up with a risk profile of the client comprising an understanding of the business operating by the audit client, assess business risk and also perform its preliminary analytical review.

* U.S. governmental oversight of accounting fraud and abuse and its effect on the company Potential corruption schemes to be aware of in the company

Sarbanes Oxley Act is focused towards identifying accounting frauds in different public companies. This paper discusses about various reasons for the introduction of Sarbanes Oxley Act and causes that has been overlooked.

Descriptions of the main aspects of the regulatory environment which will protect the public from fraud within corporations are going to be provided in this paper. A special attention to the Sarbanes – Oxley Act of 2002 (SOX) requirement; along with an evaluation of whether Sarbanes-Oxley Act will be effective in avoiding future frauds based on their implemented rules and regulations.

With regards to internal control and evaluation, the “Sarbanes-Oxley Act of 2002” is the manuscript to address fraud and risking the trustworthiness of the corporation.

Over the past decade the world has been taken by surprise by the numerous accounting scandals that have occurred, for example, Enron, WorldCom, Tyco, Xerox, and Global Crossing (Suyanto, 2009, p. 118). Since those accounting scandals occurred the United States Congress passed the Sarbanes-Oxley Act of 2002 (SOX) to help improve a company’s corporate governance and help deter fraud (Chinniah, 2015, p.2). In addition to SOX, the Accounting Institute of Certified Public Accountants (AICPA) passed the Statement on Auditing Standards (SAS) No. 99 (p. 118). Both of these new accounting laws help to deter financial statement fraud from occurring.

There were 347 alleged cases of fraud involving public company according to Fraudulent Financial Reporting: 1998-2007 sponsored by Committee of Sponsoring Organizations of the Treadway Commission (COSO, 2010) that were investigated by Securities and Exchange Commission (SEC) on May 2010, which is showing 53 increased in the number of fraud when compared to the 1987-1997 study (p.5). COSO’s result is a sad number in a 10 year period, which averaging close to 35 accounting frauds a year (p.5). COSO’S study shows out of the nearly 350 financial frauds investigated 60% were identified to involved improper revenue recognition and 89% were recognized the CEOs and/or CFOs involvement (p.5). COSO’s research

Since that time, additional acts of legislation, including the Sarbanes-Oxley Act, and the Dodd-Frank Act, became law as efforts made towards combatting fraud. Further, the Public Company Accounting Oversight Board (PCAOB) and Securities Exchange Commission (SEC) Fraud Task Force now exist in an effort to combat, pursue, and prosecute financial fraud crime (Gupta, Weirich, & Turner, 2013). Despite these measures, the methods for combatting financial fraud need updates in consideration of the ongoing advances in technology. While the principles established to date provide a strong precedent, it is necessary for corporate managers to embrace advancements in information technology-based fraud detection to strengthen the corporation’s defense against financial fraud.

No company wants to be expose to acts of accounting fraud. Fraud can take place in any department and at any position within the organization due to the increasing motivations such as incentives, pressures, and opportunities are major factors contributing to fraud. The following are a few types of accounting frauds: payroll fraud, invoice fraud, accounts payable fraud, accounts receivable fraud, financial statement fraud, and tax fraud. An external financial statement audit does not necessarily guarantee that once it is completed that the audited company has no type of fraud but it reassures the audited company that the financial statements are fairly

Fraud costs the Australian economy approximately $3 billion annually (Standards Australia 2008), and its frequency and financial impact continues to grow (Standards Australia 2008 ; KPMG 2008). Many organizations are poorly prepared to prevent and detect fraud (KPMG 2009 ; KPMG 2008 ; KPMG 2007 ; KPMG 2004). Fraud prevention is not perfect therefore, fraud detection is crucial. Fraud detection strategies are intended to quickly and efficiently identify those frauds that have circumvented preventative measures so that an organization can take appropriate corrective action (Standards Australia 2008). Occupational fraud is divided in three categories. The production of fraudulent statements is most of the time orchestrated at executive-level,

The Auditors’ responsibility for the detection of fraud is an ongoing issue that is surrounded by much controversy (Gray, Manson and Crawford, 2015). It is believed by many people that Auditors are responsible to detect fraud and have the ability to do something about it, while In fact they have a very limited role in the detection of fraud. The public’s misconception of the auditors roll and what the auditors roll actually is, is referred to as the expectation Gap. In the auditing profession they often have to keep up to date with the up to date standards from the International standards on auditing, these are important, as they are required to keep up with the constant evolving of the rules and what is expected of them. These standards are often referred to as ISA’s, the main focus of these will be ISA 240, this is the standard that covers fraud, and plays a large part in the way auditors do their statements. Throughout this essay we will be able to critically analyse what role the auditors play in the detection of fraud and what the public believe the auditors role is.

This paper will discuss the hot topics in emerging issues that was discussed in previous assignments. Several companies can benefit from finding ways to implement a comprehensive audit plan to reduce the likelihood of fraud occurring. Ideas associated with the SDLC and how to create phases that will fall in line with this execution are also detailed in this assignment. The SDLC assists in reducing fraud and cannot be applied lightly; this plan makes the process of fraud prevention and detection easier to succumb. Updating policies and procedures is an ongoing process that cannot go unkempt.

respondents reported that inadequate emphasis on fraud determent practices and on education contributed to this problem. The public interest in fraud investigation encouraged the American Institute of Certified Public Accountants (AICPA) to host a two-hour online fraud conference on CompuServe on 19 June 1996 featuring David L. Landsittel, Chair of the AICPA’s Fraud Task Force, and Edmund R. Noonan, Chair of the Auditing Standards Board (AICPA, 1996a). The conference discussed the proposed Statement on Auditing Standards, “Consideration of Fraud in a Financial Statement Audit”. The Treadway Commission (1987) recommended that accounting programmes pay more attention to fraud investigation education, suggesting that current curriculum content may be deficient in this important area. The range of knowledge required of forensic accountants in performing litigation services, giving expert testimony and conducting fraud investigation is extensive and should, perhaps, have a more prominent position in the accounting curriculum. Many groups in society expect accountants to assume a more active role in providing reasonable assurance regarding responsible corporate governance, reliable financial reporting, and detecting and preventing fraudulent financial activities. In response

How does a company truly know if they have accurate check and balancing in place to detect malicious activity that may impact financial statements? The main obligation for the sufficiency and release in the company’s annual statements resides within the management of the company (Whittington & Pany, 2014). It is a critical component, for management to have a strong financial management system that is documented, meaningful and well-considered accounting policies and procedures manual (Reineking, Chamberlain, Rudolph, & Smith, 2013); this has been demonstrated through other published audits as company have provided documentation around this policies and procedures. Additionally, all companies should create operational internal controls to improve the accuracy and validity of financial data and serve as a mechanism to defend the company’s financial assets, and to prevent fraud. The success of a company is directly influenced by procedures and policies, implementation of internal controls, checks and balancing, annual auditing, which all aid in ensuring that the company is acting in accordance to rules and regulation set forth, furthermore reflecting in positive results and successful audit reviews.

One such challenge facing internal auditors are the exaggerated got to read the business from the top-down. The recent headline frauds that initiated the SOX legislation have concerned major weaknesses within the tone at the highest and also the management setting. several audits of the past centered on transactions inside departments at numerous business units, whereas acts of fraud were being committed by executives at company headquarters. staring at the large image would require a rise within the varieties and extent of reviews at company offices, as well as not solely day to day transactions, however specific monthly, quarterly, and yearly processes which will have severe effects on the monetary statements.