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NCJ Number: 63788 Find in a Library
Title: AUDITOR AND THE DETECTION OF FRAUD
Journal: NATIONAL PUBLIC ACCOUNTANT  Volume:23  Dated:(DECEMBER 1978)  Pages:22-27
Author(s): G C HOLDREN
Corporate Author: National Soc of Public Accountants
United States of America
Date Published: 1978
Page Count: 6
Sponsoring Agency: National Soc of Public Accountants
Washington, DC 20006
Format: Article
Language: English
Country: United States of America
Annotation: THE INCREASE IN LAWSUITS BROUGHT AGAINST INDEPENDENT AUDITORS FOR FAILURE TO DETECT FRAUD HAS RAISED CONCERN ABOUT THE RESPONSIBILITIES AND LIABILITIES OF THE PROFESSION.
Abstract: PRIMARY RESPONSIBILITY FOR A FIRM'S FINANCIAL STATEMENTS RESTS WITH AN ADEQUATE ACCOUNTING SYSTEM WITH APPROPRIATE INTERNAL CONTROLS. HOWEVER, SUCH A SYSTEM WILL NOT REMOVE ALL RISK OF FRAUD. INDEPENDENT AUDITORS' PRIMARY CONCERN IS THE FAIRNESS WITH WHICH THE FINANCIAL STATEMENTS PRESENT THE FIRM'S FINANCIAL POSITION AND OPERATING RESULTS; FACTORS WHICH MIGHT AFFECT THIS FAIRNESS ARE OF INTEREST TO THEM. AUDITORS CAN NEVER BE CONSIDERED THE GUARANTORS OF THEIR CLIENTS' FINANCIAL STATEMENTS, BUT NEITHER CAN THEY AVOID ALL RESPONSIBILITY FOR THE DETECTION OF FRAUD. THIS RESPONSIBILITY IS CIRCUMSCRIBED PRIMARILY BY THE GENERALLY ACCEPTED AUDITING STANDARDS. IF THE INDEPENDENT AUDITORS FULFILL THESE STANDARDS THEY CANNOT BE HELD RESPONSIBLE FOR UNDETECTED FRAUD. IF FRAUD IS NOT DISCOVERED BECAUSE OF NEGLIGENCE, HOWEVER, AND RESULTS IN LOSSES WHICH COULD HAVE BEEN PREVENTED BY DISCOVERY, AUDITORS MAY BE LIABLE. THE AUDITORS' RESPONSIBILITY IS PRIMARILY TO THE CLIENT, ARISING FROM THEIR CONTRACTUAL RELATIONSHIP. IN ACTIONS BROUGHT BY CLIENTS, ACCOUNTANTS HAVE BEEN HELD LIABLE FOR GENERAL NEGLIGENCE OR INCOMPETENCE. SUCCESSFUL SUITS BY THIRD PARTIES WERE USUALLY BASED ON FRAUD OR GROSS NEGLIGENCE ON THE AUDITORS' PART BUT RECENT CHANGES IN COURT INTERPRETATIONS HAVE RAISED THE POSSIBILITY OF GREATER ACCOUNTANT LIABILITY. THERE HAS BEEN A MOVE TOWARD 'CONSUMERISM' IN THAT COURTS HAVE BECOME MORE LIBERAL TOWARD THE RIGHTS OF THE AVERAGE CITIZEN AND IN THEIR ATTITUDES TOWARD CLASS ACTION SUITS. HOWEVER, IF AUDITORS SUFFER FROM UNDUE LIABILITY, THEY MIGHT HEDGE THEIR OPINIONS, SO THAT THEIR WORK LOSES MUCH OF ITS VALUE. FOOTNOTES ARE INCLUDED. (AUTHOR ABSTRACT MODIFIED -- MRK)
Index Term(s): Consumer advocates; Fraud; Law Enforcement Teleprinter System; Professional conduct and ethics
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http://www.ncjrs.gov/App/publications/abstract.aspx?ID=63788

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