Rice Business Report September 2019 September 2019 Rice Business Report | Page 9

Rice Business Report September 2019
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Such attempts at concealment may be even more difficult to detect when accompanied by
collusion and as such the auditor's ability to detect a fraud depends on factors such as the
skillfulness of the perpetrator, the frequency and extent of manipulation, the degree of
collusion involved, the relative size of individual amounts manipulated, and the seniority
involved. However, users of financial information expect auditors to take steps to detect
fraud during the audit because they are often displeased when fraud goes undetected and
is later uncovered by a tip or accident whiles the resulting investigation or financial state-
ment restatement creates negative consequences for the company and its employees.
Who then has the responsibility to detect fraud in financial reporting?
Auditors' responsibilities and roles in audit are enshrined in the International Standards on
Auditing (ISA) which serves as the "bible" for auditors in the discharge of their duties and
to ensure that their reporting complies with international standards. The provisions of the
standard which are under consideration for this purpose are ISA 240 (i.e. The Auditor's Re-
sponsibilities Relating to Fraud in An Audit of Financial Statements) and ISA 315
Paragraph 4 of ISA 240 deals with the responsibility for the prevention and detection of
fraud and it states that "the primary responsibility for the prevention and detection of
fraud rests with both those charged with governance of the entity and management. It is
important that management, with the oversight of those charged with governance, place a
strong emphasis on fraud prevention, which may reduce opportunities for fraud to take
place, and fraud deterrence, which could persuade individuals not to commit fraud be-
cause of the likelihood of detection and punishment. This involves a commitment to cre-
ating a culture of honesty and ethical behavior which can be reinforced by an active over-
sight by those charged with governance. Oversight by those charged with governance in-
cludes considering the potential for override of controls or other inappropriate influence
over the financial reporting process, such as efforts by management to manage earnings in
order to influence the perceptions of analysts as to the entity's performance and profitabil-
ity"
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