Role of Auditors in Detection and Prevention on Fraud

Abstract

This paper discusses the role of auditors in detection and prevention of Fraud. For this purpose, secondary research design has been used in the form of qualitative data. Illegal or unauthorized acts by employees, vendors, contractors or third parties are a great threat of financial integrity and confidentiality of inside information of a company. If the company finds itself involved in some fraud then it must act quickly to prevent a recurrence of such acts and resume normal activities. Moreover, it must take effective measures to protect their property and financial security of the company.

Role of Auditors in Detection and Prevention on Fraud

Introduction

Financial fraud can be described as illegal actions in the field of monetary deception, abuse of trust, and other manipulations involving illicit enrichment. This formulation is derived from Article 159 of the Criminal Code, where fraud is defined as "theft of another's property or the acquisition of another's property by deception or abuse of trust." Auditors play a significant role in the detection and prevention of fraudulent activities within the firm. The company must have strong internal as well as external audit to detect fraud and take preventive measures to control fraud.

Topic Description and Key Concepts

The topic chosen for this assignment is 'Auditor's role in detection and prevention of Fraud'. Since the dilemma of fraudulent activities has been rapidly increasing, so does the need for auditor's vigilance. Auditor has the responsibility for detecting, preventing and reporting fraudulent or any illegal activities. It has become one of the most contentious concerns in audit. This debate came in light due to shutdown of large and small companies across the world. Further, media caught attention when such scandals like Enron, World com and many others (Oyinlola, 2010).

Fraud is termed as an international act that is carried out by a single individual, a group of employees, management or some third party, which leads to falsification in financial statement. In addition to this, fraud can be intentional and non intentional. In the case of intentional fraud, the underlying reasons maybe to conceal, misrepresent, omission of true figures for the purposes of manipulate/ deception to the financial-loss of a person, or a company that may include theft, embezzlement, attempting to obtain something unlawfully or steal, harm, misuse the assets of the company (Adeduro, 1998, cited by Oyinlola, 2010).

Source: http://www.acfe.com/rttn-highlights.aspx

According to experts, 20 percent of people would not, under any circumstances commit fraud, while on the other hand, 20 percent of people are stealing constantly and looking for opportunities to cheat and steal. Further, 60 percent of people would cheat if they think that they will get away with it. The Society for certified fraud examiner has released its 2012 'Report to the Nations' on fraud. In this report, they estimate that companies lose 5 percent of their revenues to fraud. If this is the equivalent to the GDP of the USA, this corresponds to $ 994 billion are lost through ...