In support of Fraud Awareness Week, Audimation would like to share the most common frauds, and discuss how the fraudsters are changing the way we audit.
According to the PCAOB, “The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.” On June 1, 2017, “whether due to error or fraud” was added and approved by the SEC.
Auditor Responsibilities Expand
Other regulators, across the globe, have already adopted the language and expanded auditor responsibility. But what exactly does that mean? Typical audits of financial statements are not the same as a fraud audit. The layman doesn’t understand that, but the internal auditor does, and in today’s data world, you need to ask what you are looking for before you jump into the data ocean. So where is the line drawn?
Know the Questions to Ask
The most basic thing to remember is to have your audience, be it a client, peer or supervisor understand the questions you are asking of the data and how it will be presented. If an auditor has failed to detect a misstatement in the record, that could be looked at as a fraud itself. It implies that the auditor is not accountable for their findings, which is simply not true. Having your audience understand your audit plan, and what it entails, and what it may produce, is the simple way to communicate your role; and protect both your client and you from misdeed or misunderstandings.
An error can be missed, but if a fraud is detected in the financial statements, this simply means that the auditor has a responsibility to report the facts; which drives public perception of the entire industry. How do people know auditors and accountants? General perception is that auditors find fraud, as their function in business.
Set Clear Expectations
We know the difference between audits of financial statements and a fraud audit. We also know there is a difference between a CPA, a CFE and the many other designations. Most people do not understand that all CPAs aren’t auditors and believe all do both tax and audit. Most would believe that you cannot have a CFE and not be a CPA, whereas we know it is not one and the same. In a mid-sized to small business, without a CPA or a Data Scientist, owners hope that their accounting department is looking for fraud – but they do not have the training to do so, and their C-Level has not had the experience in the accounting field itself to know the differences.
The key is educating your audience. Do not let them believe that one is the other, when you are providing the service. There is no guarantee of success in any professional opportunity, but having your client understand the data and where the pitfalls may be, will bring you a happy client in the end, regardless of findings.
During Fraud Awareness Week, we are sharing a series of articles, videos and tips for using data analytics to find fraud schemes. Stay tuned!