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AUDITOR RESPONSIBILITY LEVELS FOR FRAUD AND ERROR

ABSTRACT: Is it the responsibility of audit firms to spot wrongdoing in the
organizations they monitor? They represent, as per the general public
...
Among the most contentious topics in auditing is
indeed the auditor's responsibility for monitoring, recognizing, including
exposing frauds, other nefarious activities, and inaccuracies
...
The outcomes of this research
also revealed that the intention of an audit is commonly misunderstood
...


Introduction
External auditors are often considered as a remedy to agency conflicts, with
audits serving here as means to certify firm management's accountability and
sustainability in minimizing the risk of simple errors and fraud and
administrative tampering are examples of intentional inaccurate statements
...
(Sikka, Puxty, Willmott and Cooper, 1998)
...

Is it the responsibility of audit firms to spot wrongdoing in the organizations
they monitor? They represent, as per the general public
...
Among the most contentious topics in auditing is indeed the
auditor's responsibility for monitoring, recognizing, including exposing frauds,
other nefarious activities, and inaccuracies
...
The
failure of large institutions such as Enron and Worldcom has brought this topic
to a head
...


Despite the fact that a number of modifications were implemented around the
world to support the world's economy from similar financial disasters, it appears
that these did not have the desired effect
...
Ernst & Young issued an unqualified audit
report to Lehman Brothers' accounts for the year ended November 30, 2007 on
January 28, 2008
...
" Conversely, Price
Waterhouse-Coopers, one of the world's top accounting firms, has been
criticized for being ineffective to identify a US$1
...
37 billion)
financial fraudulent activity in Satyam, an Indian IT business register on the
New York Stock Exchange
...
(NST,
2009; Wikipedia: Satyam Computer Services Ltd, 2009)
...
Even if the financial statements of such firms were audited by
independent auditors, affected people mainly filed civil accusations over their
executives
...
As a result, if the business is considered
to be in major financial distress without notice, it is often felt that auditors must
be held responsible for all these crises
...
"Shareholders have requested the
government to implement harsh action towards others who assisted falsify the
accounts of Transmile Group Bhd," a local newspaper, New Straits Times,
published in the Business News on June 19, 2007
...
(p
...

The current situation reinforces the view that auditors' main responsibilities are
to avoid, identify, and disclose fraud
...
The research also intends to see if the report consumers' opinions of
auditors' fraudulent duties match that of the auditing profession notably
represented in Bulgarian auditing standards
...

As per Brink and Witt (1982), fraud is a constant danger to the efficient
allocation of energy and will still be a major management issue
...
ISA 240, 'The Auditor's
Duties in Considering Fraud in a Financial Report Audit (Modified)' "A
purposeful activity by one or many people among management, officials
responsible for governance, staff, or 3rd parties, associated the need of
deception to acquire an unfair or unlawful benefit (para
...

According to their Fraud Study 2004, KPMG Forensic Malaysia (2005:5)
presents fraud as "an intentional deception targeted and implemented with the
aim of exploiting someone of his or her assets or privileges, whether or not the
offender gains by his or her acts
...
Furthermore, fraud is not
limited to financial or material gains
...
Fraud is defined as "
...

As per Mr
...
" In his "Dictionary of Civil Law," Mr
...
Costin stated that fraud is a purposeful breach by the participants of the
directive principles of the applicable legislation, typically by deception, at the
end or implementation of a particular law
...
Gupta and Ray (1992) cite research on internal auditing that
demonstrates that fraud detection was important in both ancient and early
modern periods
...

From the beginning, the job of auditors has indeed been ill-defined (Alleyne &
Howard 2005)
...
Her research reveals that
there is a review of auditing techniques and a transformation in auditing
perspective at various phases
...
Nevertheless, by the 1930s, the ultimate focus of
an audit had shifted to account verification
...
During this time, the auditing profession began to demand
that it was the responsibility of the management to discover fraudulent
activities
...

The press as well as the general population were outraged in the 1960s when
auditors refused to consider fraud-detection responsibilities
...
Despite the complaints, auditors maintained to downplay the
role it plays in preventing fraud, claiming that this responsibility fell to
management
...
Porter
(1997) claims that, while case law has ruled that auditors must detect fraud in
some cases, the courts have endeavoured to keep the auditors' responsibilities
beyond normal boundaries
...
(2005), on the other hand, claim that
since Enron's demise, auditing standards have indeed been reformed to reemphasize auditors' obligations to discover wrongdoings
...


In the course of an audit, auditors are required by ISA 315 to assess the efficacy
of an institution's risk management structure in eliminating misleading
statements, either through the wrongdoing or anything else
...
They go on to say that an
assessment was previously only necessary whenever they opted to rely on that
methodology and limit the scope of the audit probe
...


Furthermore, according to Boynton et al
...
They must now analyse the motives and chances offered to
prospective fraudsters, and the rationalizations used to justify the unethical
activity
...


Empirical studies on fraud detection
Beck (1973) and Monroe and Woodliff (1994) in Australia; Arthur Anderson
(1974), Baron et al (1977) and Epstein & Geiger (1994) in the United States;
Humphrey et al (1993) in the United Kingdom; and Low (1980) in Singapore;
Leung and Chau (2001) in Hong Kong; Dixon et al (2006) in Egypt; Fadzly and
Ahmad (2004) in Malaya] Several financial report readers feel that identifying
abnormalities is the main audit purpose and that auditors are responsible for
spotting all inconsistencies, according to the findings of this research
...


Despite substantial ongoing studies on fraud, no such research has been done in
Bulgaria
...
furthermore, The Institute of Chartered Accountants
in Australia (ICAA) recognizes the requirement for longitudinal research to be
carried out in 3 periods to notice adjustments in users' insights and expectations
of auditors in their investigation 'Financial Report Audit: Meeting the Market
Expectation (2003)'
...
The
study's findings may deliver insight to the Auditing Standards Board into the
identified efficiency of Bulgaria's standards on auditing
...
Alleyne and
Howard employed a questionnaire that was customized for this project (2005)
...
Section I and Section II are the two primary
components of the survey
...
Section II is separated into two portions, Part
A and Part B, each having its own goals and sizes
...

Users needed to choose from a scale that ranges between "agree" to
"vehemently disagree" when answering Likert-style inquiries on a 5 scale
...
The questions were developed after an indepth analysis of international standards on auditing outlining auditors'

obligations (Alleyne & Howard, 2005; Gay et al
...
, 1997; Gay
et al
...
, 2001; Best et al
...
, 2001; Gay as al
...
, 2001; Gay et al
...
Additionally, the inquiries are
structured in a manner that corresponds to the Certified Standards On auditing
in Bulgaria, making it easy for participants to react to the inquiries
...
This survey's respondents can be classified into
three categories: auditors, managers, and bankers
...
All users were provided online surveys
...
They also have the benefit of extra programs that prohibit
incomplete surveys from being returned
...
cafr
...
jsp?page=member cafr
...

Later, in the spreadsheet "EXCEL 2000," we generated a final sample of 451
auditors using the "data analysis" feature, which contains the instruction for
"creating different numbers" of uniformly distributed
...

The members of the managers' group were chosen from registered firms on the
Bucharest Stock Exchange's principal & resale market, as these firms are more
likely to audit their yearly financial accounts
...
We prepared and submitted 275 of the 391
surveys, whereas 116 were discarded with rejection warnings leading to
inaccurate e-mail addresses
...
We distributed 75
forms, all of which were delivered to their intended recipients
...
We used a statistical analysis
software called "SPSS (Statistical Package for the Social Sciences), edition
15
...

The survey design used, in our view, had a very high response rate of 27
...
Table 1 provides a full description of each type of respondent
...
2 %, after managers with 27
...
2 %
...

Moreover, over 90% of those polled said they were familiar with the work of
auditors
...


Findings and Discussions
Analysis of responses related to existence and extend of fraud
...
5 percent of those surveyed believed that corruption is a
big concern in Bulgaria, with 16
...
Nevertheless, 21
...
1 percent oppose and 2
...
Ultimately, the findings suggest that there is a
disconnect between participants' aspirations and current regulatory obligations
for auditors in terms of investigating and identifying corruption
...


When asked if the detection of fraud cases will negatively affect individuals,
11
...
6 percent agreed
...
Furthermore, the detention of legal advisers of
huge corporations a few years ago resulted in a sharp decrease in the cost of
stock holdings
...


Table 3 demonstrates that 18
...
3% of participants believed and
generally agree, accordingly, that the auditor's role is to avoid fraudulent
actions
...
1 percent strongly disagreeing and 22
...
The ratios
are preserved in the other four questions as well
...
The
goal of an audit of financial statements, as per ISA 200 "Objective and General
Fundamentals Guiding an Audit of Financial Statements," is for the auditor to
be capable of expressing an opinion on whether the financial statements are
organized in all quality areas by generally accepted accounting reporting
requirements
...
To do this, the audit must be prepared and
carried out with professional judgment throughout the transaction
...
The auditor must also not presume that the
management is totally truthful
...
6% disagreed and 19
...
Auditors are not mandated by law to
avoid and find fraud; but, once fraud is identified, auditors must disclose such
fraudulent practices to the legal parties
...
Interestingly, large numbers of
participants assume that auditors are responsible for fraud detection and
evaluation
...
In these conditions,
it's fascinating to examine and assess the views held according to each type of
individual
...
0" to analyse the responses of the three demographic
segments
...

People have great aspirations of auditors' obligations and responsibilities than
they need to, as evidenced by responses with an overall average greater than 3
...


The majority of managers and bankers assume that auditors are accountable for
discovering fraud and errors, according to the mean values are shown in table 4
...
This conclusion is comparable to that of Best et al
...

Since International Organization for standardization on Auditing 240 "Fraud
and Error" explicitly states that management is accountable for detecting and
preventing fraud, and auditors' primary role is to discover fraud and mistakes
only far as they are linked to risk analysis, there is a mismatch here
...
The
high number of responses in the auditors' group is unexpected, indicating that
there have been differences in opinions about the responsibility to report
wrongdoing in the given assessment including among this group
...
Users believe
auditors are accountable for the firm's internal control integrity to a smaller
extent (question 6)
...


The replies to the topic of whether auditors should execute extra audit processes
in order to identify fraud are displayed in this part
...
4 percent
(very agree) and 23
...
It's
probable that the high number of people who believe present auditing
techniques for fraud prevention are inadequate and ineffective are a result of
well-reported financial crises employing legal auditors, which create a feeling
of powerlessness among financial statement readers
...
5 percent and 37
...
Once
again, we can see that the responses are somewhat compliant with the
International Organization for standardization on Auditing ISA 400 "Risk
Evaluation and Management Framework
...
However, ISA
400 does not specify whether or not the internal control system must be
evaluated to determine whether or not it can deter or avoid fraud (theft of
assets)
...
Auditors are needed to execute a preliminary evaluation of the
internal audit function whenever it shows up that internal auditing is meaningful
to the independent audit of the financial statements in detailed audit locations,
according to the International Organization for standardization on Auditing ISA
610 "Considering the Tasks of Internal Auditors
...
6 percent
and 32
...
This could indicate that present
international standards on auditing are weak and inadequate in terms of
investigating suspected fraud
...
It also looks into
the observed scope of the audit procedures
...

According to the findings, Bulgarian are greatly worried about the issue of
fraud
...
This impression contrasts sharply
with the declared sole goal of an audit, as outlined in ISA 200, which only
allowed auditors to provide a judgment on the financial report and not on the
firm's fraud prevention measures
...

The research also revealed a lack of knowledge of the legislative obligations of
auditors among members
...

The current scenario can be rectified by a variety of tactics, the two greatest
likely to succeed being: greater interaction by auditors to engage with
consumers on the function and real tasks of auditors; and ii) broadening the
scope of the audit to satisfy consumer demands
...
Broadening the scope of an audit,
on the other hand, may help to reduce the "anticipation mismatch" concern by
requiring auditors to perform additional activities not earlier necessary
...


References
1
...
& Howard, M
...
An exploratory study of auditors’
responsibility for fraud detection in Barbados
...

20(3):284@303
...
Arthur Andersen & Co
...
Public Accounting in Transition, Arthur
Anderson & Co
...
Baron, C
...
& Smith, S
...
(1977)
...

October
...
Beck, G
...
The role of the auditor in modern society: An exploratory
essay
...
Spring:117@22
...
Boynton, W
...
& Kell, W
...
Assurance and the integrity of
financial reporting
...
New York: John Wiley & Son, Inc
6
...
Z
...
1982, Internal Auditing
...

7
...
, Innes, J
...
2005
...
Managerial Auditing Journal
...

8
...
& Woodhead, A
...
An investigation of the expectation gap in
Egypt
...
21(3):293@302
...
Epstein, M
...
1994
...
Journal of Accountancy
...

10
...
& Ahmad, Z
...
Audit expectation gap
...
19:897@915
...
Financial Report Audit: Meeting the Market Expectation
...
The
Institute of Chartered Accountants in Australia (ICAA)
...
charteredaccountants
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au/resource_centre/auditing_assurance/au
diting_thou ght_leadership/expectation_gap/A117226614
12
...
, Schelluch, P
...
1997
...
Australian Accounting Review
...

13
...
D
...
1993
...
School of Accountancy Research Series
...
University of Pretoria
...
Godsell, D
...
Legal liability and the audit expectation gap
...
8:25@ 28
...
Humphrey, C
...
& Turley, W
...
The audit expectation gap in
Britain: an empirical investigation
...

23:395@411
...
KPMG Forensic Malaysia
...
Fraud survey 2004 report
...

17
...
& Chau, G
...
The problematic relationship between audit
reporting and audit expectations; some evidence from Hong Kong
...
14:181@206
...
Lin, Z
...
2004
...
International Journal of Auditing
...

19
...
M
...
The auditor’s detection responsibility: is there an
‘expectation gap’? Journal of Accounting
...
October:65@70
...
Monroe, G
...
1994
...
Australian Accounting Review
...

21
...
1997
...
and Turley, S
...
, Current Issues in
Auditing, Paul Chapman Publishing
...
2:31@54
...
The Star
...

http://biz
...
com
...
asp?file=/2007/6/19/business/18065710&s
ec=business
23
...
13 September 2002
...
snni
...
cgi?archives/2002_09_13/malaysia/s
t1309_1
...
The Star
...

http://www
...
net/dailystarnews/200207/01/n2070105

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