Revisors udfordringer ved besvigelser

Salina Sørensen & Pernille Hammerich

Student thesis: Master thesis


Summary: When there is fraud in business, often there will be asked questions to the auditor's work and whether the auditor could have done anything different. Therefore this thesis is addressing the challenges auditors face in relation to fraud. During the thesis, various ways of how to commit fraud by abusing the company’s assets is identified. Especially abuse of company cash offers many opportunities to commit fraud. Similarly, there has been identified how to commit fraud by manipulating the accounts in the financial statement. Both employees and management can abuse the company assets, and the incentive most represented in the examples included in the thesis was personal gain, either in the form of direct cash in hand or by private savings and most times it was possible to commit the fraud because the companies didn’t pay enough attention to establish the necessary internal controls for prevention of fraud. Fraudulent financial reporting is in turn only made by management, which is the result of the fact that the management presents the company's accounts and therefore has access to the inputs that make up the accounts. The incentive to commit fraud connected to financial reporting is a little more varied and three of the cases we have chosen to include had following incentives; 1) always show profit 2) to live up to the expectations of shareholders and 3) boosting own ego through lots of praise in the media, while it was possible to skim the company of a lot of millions. Since it is management that prepares financial statements, the auditor faces the challenge that it may appear that there will be omitted important information that can’t be read out of the accounts. The auditor has a lot of tools at his/hers disposal to be able to express an opinion in his/hers endorsement with reasonable assurance that the financial statement gives a true and fair view of the financial position at the balance sheet date, and that the financial statement is free from material error due to fraud. Unfortunately, many of the ways to commit fraud, which were identified at the beginning of the thesis, can’t be detected by a simple audit. The auditor should therefore assess whether there are some "red flags" within the company, which could increase the risk of fraud in the entity, for example, whether the company has established the necessary internal controls and there is sufficient segregation of duties within the company, to prevent fraud. In addition, it is important that the auditor plans his/hers audit so that it contains a level of unpredictability. In doing so, it’s not possible for the employees and management to predict which audit procedures the auditor will 2 use, and what part of the transactions during the year the auditor will investigate. This helps to prevent the risk of fraud in the company, since the risk of being discovered increases. If the auditor assesses the risk of fraud to be present in a company, the auditor must perform additional audit procedures to either confirm or deny his/hers suspicions. If it appears that the suspicions are confirmed, the auditor generally reports his/hers findings to the management. If the management is either unwilling or unable to rectify the error in the financial statements, which have arisen as a result of fraud, the conditions must be reported to the owners through the auditor’s opinion. Discovery of fraud should always be addressed in the audit report, whether management rectifies the matter or not. One of the auditor’s challenges related to fraud is that the public largely believes that when a company's annual report contains an unmodified opinion, this means that the auditor has reviewed all the material underlying the accounts, and that no errors is present in the financial statements. We don’t consider increased requirements for sampling and stricter rules for level of significant, to be a viable solution to this challenge, as the value for the user of the financial statement would not be increased significantly, although the auditor, and thus the companies, were required to invest more resources in the form of expanded work actions, including a fixed requirement for a specific size of samples. The auditor shall perform his/hers duties as a representative of the public and use his/hers professional skepticism when an audit is carried out and we believe that the auditor is able to assess from company to company, where risks exist and thus where there should be an increased focus from the auditor’s side. On the other hand, we have identified that an update of the auditor’s endorsement could be a way to meet the challenges, in regards to communication of what the auditor has been carrying out. Especially the language could be changed into more everyday used expressions, instead of tearms within the auditing industry. For example clarifying that the use of samples is a way of achieving reasonable assurance, that the financial statement is free of material error, was identified as a possible improvement.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2015
Number of pages111