The expectations gap occurs because many investors and policy makers expect auditors to detect all fraud, and if they do not, the auditors are presumed to be at fault." (Apostolou and Crumbley, 2008)
The specific requirements of auditors are included in SAS 99 AU 31 and IAS 240 and in summary includes the following requirements: (1) Considering a company's internal controls and procedures, and how these are actually implemented, when planning the audit; (2) Designing and conducting audit procedures to respond to the risk that management could override internal controls and procedures; (3) Identifying specific risks where fraud may occur; (4) Considering whether any misstatement uncovered during the audit may be indicative of fraud; (5) Obtaining fraud-related written representations from management; and (6 Communicating with appropriate managers and the board if the auditor finds an indication that fraud may have occurred. (Apostolou and Crumbley, 2008)
VI. FRAUD TRIANGLE
The fraud triangle is comprised by the: (1) incentive or pressure in that management or other employees may have an incentive or be under pressure providing a motivation to commit fraud; (2) opportunity in that circumstances exist that provide an opportunity for fraud to be perpetrated; (3) rationalization in that those involved in fraud are able to rationalize a fraudulent act as being consistent with their personal code of ethics. (Ramos, 2003b) There are stated to be individuals in possession of an "attitude, character or set of ethical values that allows them to knowingly and intentionally commit a dishonest act." (Ramos, 2003b)
VII. AICPA ETHICS GUIDANCE FOR AUDITORS
AICPA ethics for auditors is comprised of rules concerning the integrity and objectivity of auditors as well as the obligations of the auditor to their employer's external accountant and other additional ethics considerations. The AICPA .01 Rule 102 'Integrity and Objectivity' states that the auditor shall "in the performance...
In dealing with his or her employer's external accountant, a member must be candid and not knowingly misrepresent facts or knowingly fail to disclose material facts. This would include, for example, responding to specific inquiries for which his or her employer's external accountant requests written representation." (American Institute of CPAs, Inc., 2008) Rule .5 102-4 'Subordination of a Judgment by a Member' Rule 102 (ET section 102.01) "prohibits a member from knowingly misrepresenting facts or subordinating his or her judgment when performing professional services. Under this rule, if a member and his or her supervisor have a disagreement or dispute relating to the preparation of financial statements or the recording of transactions, the member should take the following steps to ensure that the situation does not constitute a subordination of judgment." (American Institute of CPAs, Inc., 2008)
BIBLIOGRAPHY
Ramos, Michael (2003) Auditor's Responsibility for Fraud Detection. Journal of Accountancy; Jan 2003; 195, 1; ABI/INFORM Global. Adapted from'Fraud Detection in a GAAS Audit' SAS No. 99 Implementation Guide. Online available at: http://users.ipfw.edu/pollockk/SAS99Article.pdf
Ethics Decision Tree: For CPAs in Government (2008) American Institute of CPAs, Inc., 2008. Online available at: http://www.aicpa.org/download/ethics/EthicsGover294cv.pdf
Apostolou, Nicholas and Crumbley, D. Larry (2008) Auditor's Responsibilities with Respect to Fraud: A Possible Shift? The CPA Journal. 2008 February.…
