Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Focus
and
Insights
from an
Expert
Witness
By W. Steve Albrecht and Jeffrey L. Hoopes
A
uditors are expected by the public to find financial statement fraud, even
though U.S. GAAS has long held that they might not be able to detect all
frauds. The following discussion draws upon the experience of an expert
witness in numerous major fraud cases in order to illustrate situations in
which auditors can—and cannot—reasonably be expected to detect fraud. Certain fac-
tors can make fraud nearly impossible to discover, even when a competent GAAS
audit is performed, and certain factors are often present when auditors should have detect-
ed fraud.
Purpose Provides reasonable assurance that financial statements, Detects and investigates suspicions or allegations of fraud.
as a whole, are prepared in accordance with applicable
auditing standards.
Scope Not looking for specific problems, but rather, to issue an Investigating suspected fraud, often targeting only one or
opinion on the overall financial statements. two accounts; there is always predication and sometimes
tips (or confessions) about where to look.
Method Financial statement auditors must rely on sampling, Fraud auditors analyze all transactions that are within
which introduces sampling error. the scope of the audit, eliminating sampling error.
Procedures Reperformance, analytical analysis, documentation, GAAS audit procedures, plus surveillance, extensive
confirmation, observation, physical examination, and interviews, seizure of computers and confiscation of
inquiry, all performed with as little disruption as possible. records, all performed without forewarning, without
regard to disruption of business, and with the ability to
subpoena records.
Timing Occurs in a predictable and consistent manner, with the Occurs when there is predication (allegation or suspicion
majority of the audit happening near year-end. of fraud) at any time during the year, without notice or
warning.
Reason for To see if they are functioning as designed and to To see where there is a potential for fraud and whether
Testing establish the scope of their audit. In public company control weaknesses have been abused to help commit
Controls audits, to examine controls as required by section 404 fraud. A lack of controls provides fraud opportunities.
of the Sarbanes-Oxley Act of 2002.
Reliance on There is neither the time nor the resources to corroborate Fraud auditors rarely, if ever, rely on management
Management all information provided by management. Financial representations because they already suspect that
statement auditors must often rely on management management cannot be trusted—that is the reason why
representations because it is infeasible not to do so. they were engaged.
They neither assume that management is honest nor
dishonest.
Training Performed by CPAs trained in auditing and accounting. Conducted by Certified Fraud Examiners (CFE) or other
Becoming a CPA requires little specific fraud training similarly trained professionals. CFEs understand auditing
beyond a basic audit course. CPAs are trained to provide and accounting, and are also required to be skilled in
a vast array of financial services. forgery identification, detection and investigation
methods, interviewing, criminal profiling, and how
perpetrators use fraud schemes. CFEs are trained to
detect and investigate fraud.
Exposure to Financial statement auditors are rarely exposed to fraud. Fraud auditors live on a constant diet of fraud. Detecting
Fraud With 17,000 public companies, and only a few being and investigating fraud is what they do, and most
investigated for fraud, a GAAS auditor might work an companies where they are engaged have a high
entire career without ever seeing a financial statement suspicion of fraud. Investigation is the expectation in
fraud. a fraud audit.
EXHIBIT 2
Issues in Determining Whether Financial Statement Auditors Were Negligent