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Sunday, March 22, 2020

Auditing the Auditor

In today’s world where corporate scandals often make front page news, fraud prevention and detection are becoming a priority for management and decision-makers. Typically, a large majority of midsize to large organisations consider their internal and external auditors as the pivotal tool for uncovering fraud and taking preventive measures to minimise the risk of loss incurred due to a fraud. However, this doesn’t imply that independent auditors often identify fraud, in fact, the opposite is true in many cases. ACFE’s Report to the Nations points out the fact that auditors rarely find fraud – internal audit detects fraud 15% of the time, while external audit merely 4%.

A consultation paper to examine the existing provisions of law and make suitable amendments therein to enhance audit independence and accountability has been placed on the Ministry’s website at www.mca.gov.in. The paper states:
Broadly, the auditor’s financial or other interest in client’s business inappropriately influence his judgement or behaviour and a conflict of interest always exists, which may result in the auditor turning a blind eye to potential risk or at the extreme ignore an impending/occurred fraud. 2.1 There is self-interest threat due to reliance of auditor on the fee from the client. This is manifested in various ways and results in various negative consequences.
 Economic Times dealt on response of big 4 audit firms- Thermometers cannot prevent heart attacks.

Read the worst 10 accounting frauds-https://www.accounting-degree.org/scandals/


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