Question.3531 - Discussion Topic: Auditors must consider the possibility of fraud by employees or management on every audit engagement. They must also consider the possibility that the client has not complied with laws. (a) Distinguish between employee and management fraud. (b) Describe the auditors' responsibility for the detection of fraud in an audit. (c) Describe the auditors' responsibility regarding noncompliance with laws by a client.
Answer Below:
Auditors make sure that financial statements are accurate and reliable. Their responsibilities go beyond just checking figures; they also have to take into account the potential for fraud and legal violations by staff or management. Employee fraud usually entails one or a few people or certain groups within the company that may have the intention of stealing assets or misuse the system for their own benefit. Typical instances compromise of embezzlement, falsifying time-sheets, and unapproved transactions. However, management fraud is typically more complex and involves senior executives who falsify financial statements or use other illegal tactics in an attempt to manipulate investors, raise stock prices, or hide poor performance. Employee fraud often has an impact on functional effectiveness, while managerial misconduct can have far reaching impacts, including the potential for legal problems and a decline in investor trust (Whittington and Pany, 2022). In every audit involvement, auditors must evaluate the possibility of a material misinterpretation brought on by fraud. This includes analyzing the internal controls of the organization to determine the potential fraud hotspots, and creating audit protocols to spot fraudulent, and creating audit protocols to spot fraudulent activity. It is crucial to remember that auditors cannot ensure that every fraud will be found; some schemes may be well-hidden or outside the purview of their work. Finding significant errors that could compromise the accuracy of the financial accounts is the main goal (Whittington and Pany, 2022). Barring fraud, auditors also need to keep in mind legal and regulatory violations. Although they are not required to find every incidence of noncompliance, auditors are in charge of spotting significant instances that can have an influence on financial statements. This entails assessing the legal and regulatory landscape of the business and talking about any possible risks or problems with administration and legal counsel. When noncompliance is found, auditors have to analyze how it influences the financial statements and whether more disclosure or an adjustment to the audit opinion is required. References Whittington, O. R., & Pany, K. (2022). Principles of auditing and other assurance services (21st ed.). McGraw-Hill Education.More Articles From Accounting
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