Saturday, 8 February 2020
The Responsibility of the Auditor for Fraud and Error Lab Report
The Responsibility of the Auditor for Fraud and Error - Lab Report Example This paper discusses the auditorââ¬â¢s responsibility for fraud and error. It studies the link between the objectives of external audit to this responsibility. It draws on relevant auditing standards that provide guidance on the responsibility of the auditor for fraud and error in the financial statements. It also discusses the responsibilities of the business entitiesââ¬â¢ board of directors and management. Lastly, it provides some discussions on the higher ââ¬â profiled fraud cases in the past and the effect on the auditing profession of these high ââ¬â profiled cases. The Glossary to the International Standards on Auditing or ISA (p. 19, IFAC, 2010) officially defines fraud as ââ¬Å"an intentional actâ⬠, committed by a certain individual or certain individuals by using deception ââ¬Å"to obtain an unjust or illegal advantageâ⬠that inevitably leads to the misstatement of the financial statements. Error, on the other hand, is defined as an ââ¬Å"unintentional misstatement in financial statementsâ⬠which may include omitting a certain amount or a certain disclosure (p. 18, IFAC, 2010). Both fraud and error may lead to financial statements misstatements. Both of them may lead to restatements misstated financial statements. However, what sets the two apart is whether the financial statements misstatement is deliberate or not, with fraud considered more serious (and illegal) than error. Financial statements fraud is done due to a variety of reasons. Some of the reasons may include trying to obtain new credit or more investments; ââ¬Å"creating favorable stock valueâ⬠; trying to conceal an inability to improve the performance of the company; increasing management or the board compensation by showing higher earnings; ââ¬Å"obtaining a promotionâ⬠¦within the companyâ⬠and ââ¬Å"hiding improper business transactionsâ⬠(p. 58, Rezaee and Riley, 2010).Ã
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