What Management and Auditors can do to Help Prevent Fraud, Errors and Illegal Acts
Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills, and improving abilities. Improving the knowledge of the audit committee and external audit team in general accounting principles and procedures, as well as past fraudulent activities, enhances their understanding of the financial statements being audited, effectively increasing their ability to notice discrepancies. Even internal auditors can benefit from this by noticing the red flags of fraud and notifying the proper hierarchy. Improving their skills in accounting methods will make members more able to assess fraud risks. Finally, by improving their abilities to recognize fraud, members of the auditing committee and internal auditing team will know how to search for fraud then be able apply their new understanding of and experience with fraud prevention and detection to future audits. Preventing and detecting fraud in an audit is difficult without the proper knowledge and understanding of accounting principles and procedures, as well as knowledge of fraudulent activities. AU section 316.52 states, “Chang[e] the nature, timing, and extent of auditing procedures needed to address identified risks of material misstatement due to fraud,” (Nysscpa). Without the appropriate knowledge of accounting procedures, the auditor may not...
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