Financial Accounting Blog

Sunday, September 19, 2004

Auditors and Fraud. This Feb 2004 article in the J. of Accountantcy makes an interesting proposal for a change in auditors' responsibilities for detecting fraud.
One of the most difficult issues facing the profession is that there are no auditing procedures that can provide absolute assurance in detecting all fraudulent financial reporting. As a result auditors have historically attempted to avoid, albeit unsuccessfully, the responsibility for fraud detection. In the current environment, the public holds expectations of auditors with respect to fraud that simply cannot be fulfilled. The auditing profession could be better served by adopting a more holistic approach to the deterrence of fraud.

This concept, called the Model Organizational Fraud Deterrence Program (the model), employs a best practices approach to fraud prevention. Using this model, researchers would identify the factors present in organizations, both accounting and otherwise, that affect occupational fraud. They then would develop a model deterrence program based on those factors. Thereafter, instead of opining that the entity is essentially free of material fraud, the auditor would disclose the client's degree of compliance to the model.