Auditor’s Responsibilities in Fraud and Error Detection

Auditor’s Responsibilities in Fraud and Error Detection Auditing October 17, 2011 Auditor’s Responsibilities in Fraud and Error Detection In recent years, scandals such as Enron and WorldCom have not only brought up the question â€Å"Where were the auditors?,† but have also brought to our nation’s attention that auditing of public companies must be done with more precision and must have guidelines on the proper way to account for different items. Fraud, illegal acts, and errors happen every day and it is the auditor’s responsibility to find these mistakes and fraudulent accounting in order to make a qualified opinion. The government has helped by setting guidelines in the Sarbanes-Oxley Act of 2002 and the PCAOB (Public Companies†¦show more content†¦This is another area where errors come into place most commonly when a company does not capitalize its leases. In 2009, KMPG was being held partly liable for the downfall of New Century, since during the audits, the auditors found errors in the financial statements but were silenced by the partners so they could keep New Century as a client. KMPG ended up having to pay over forty-five million dollars for not detecting the errors. This is why auditors must make sure they do not give unqualified opinions when errors are present on the financials, or they could cost their company a lot of money. In addition to fraud, auditors must also know how to detect other illegal acts when auditing a business. There is further explanation by the Statements on Auditing Standards under SAS 109, which requires auditors to understand the risks associated with the entity’s regulatory, legal, and political environments, including their requirements. When there is a high risk, the auditors must make sure that there are effective internal controls implemented and operating. This also stresses the importance of auditors to be familiar with the entity so they are aware of the environmental requirements and whether or not the shareholders are at risk. For example, not properly disposing of toxic waste could call for huge fines and sanctio ns by the government and greatly affect a company’s financials. These are procedures accountantsShow MoreRelatedThe Auditor and Fraud1175 Words   |  5 PagesEXPLAIN THE RESPECTIVE ROLES AND RESPONSIBILITIES OF MANAGEMENT AND AUDITORS IN THE PREVENTION AND DETECTION OF FRAUD. The primary responsibility for fraud detection lies with management. This arises due to a contractual duty of care. 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