As financial statements represent the functioning of the management, it is essential to maintain authenticity and reliability for avoiding fraudulent actions, while preparing such reports. The auditors express their views associated with the maintenance of authenticity and transparency by the management. They have been given the authority to assess these financial statements of organizations in order to judge the transparency of such information. They gather evidences in order to assure that the figures appearing in financial statements do not include material misstatement. The credibility of such reports is incremented by means of the audit process carried out by the auditors. These reports audited by auditors have huge impact on the decisions of investors, bankers, creditors and other stakeholders. The economy is struggling hard for recovering from a tumultuous situation which is infested with severe corporate scandals associated with misconduct of the auditors which have resulted in losing investor’s confidence. Presently, greater emphasis is given on improving the credibility, accountability, transparency and trust associated with the information provided in financial statements (Romero, 2010). The present structure involved in the audit process seems to be very problematic. Most of the big organizations generally pay their auditors by means of a third party known as the ‘audit system’. There are cases where clients make these payments directly to the auditors. In such cases, there is an added incentive paid by the clients to the auditors for delivering favourable news. Now the question which arises is whether such actions affect the real performance of auditors or influence them to lose their independence (Cooper & Neu, 2006). Actually, it does affect the real performance of auditors, thereby reducing the transparency and authenticity of the information in their audit reports. The auditors manipulate the figures in these financial statements in order to earn high incentives. This has become one of the most remarkable issues requiring urgent attention in the present scenario. The thesis would be conducted on the topic, ‘Factors involved in fraud cases with external Auditors’. It would be done by dividing the entire analysis into three segments. The study would highlight that the auditors are influenced in three different ways: conflict in interest, double positioning threat and finally, the familiarity threat. Analysis Conflict in Interest The auditor’s independence is the major area of concern in this study. It is known that the managers have an interest in misrepresenting, exaggerating or manipulating the information provided in the financial statements of organizations. It is expected that an independent audit report must provide unbiased and credible appraisal related to the financial status of an organization. The significance of the auditor’s independence has been shown in American Institute of Certified Public Accountants’ (AICPA’s) Code of Professional Ethics. It has been made mandatory by various legal decisions, which are provided by the Supreme Court of United States, in their opening quote. Recently, there was a series of events which has raised questions regarding the independence involved in the present practices related to accounting. The United States Securities and Exchange
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Factors involved in fraud cases with external Auditors Introduction The auditors play a very significant role in the decision making procedures. They perform the responsibility of measuring the accuracy of financial statements of an organization. These financial statements are then utilised by owners of the companies for evaluating the management stewardship…
The internal audit function seeks determine to express an opinion on whether an entity’s financial statements show a true and fair view of the companies operations. Inclusive in showing a fair view is the need to ensure that it has been prepared in accordance with accepted accounting standards.
The case study reveals that greed and unethical business practices were the root causes of Enron scandal. The Enron case scenario also points that the element ‘trust’ plays a significant role in determining the market position of a business. In addition, the Enron collapse also reminds auditors to be more vigilant while issuing an unqualified audit report.
The reason for selecting this topic primarily rests upon the fact that fraud can cause significant harm to any organization and the capital market. The frauds need to be identified and it is the role of external auditor to recognize any fraud in organization.
The reports revealed the facts that the company scheduled smuggled money as sales from foreign banks. The reports misrepresented the true value of accounts payable to creditors. The inventory was overstated and the audit reports were doctored. The company’s accounting policy recognized sales returns by crediting the respective amount and at the same time it also counted it as inventory.
It has also challenged numerous businesses, in the event of economic crisis by translating into high systemic risks and financial instabilities. Over the past, numerous corporations collapsed because they worked on wrong assumptions that failed to fully reflect the condition of their finances.
history. Presenting significant clues and insights on the nature and implications of financial accounting frauds perpetrated by corporations, the case of WorldCom is particularly instructive from a forensic accounting perspective.
The case study presents an analysis and discussion on the accounting frauds committed by WorldCom that led to its eventual bankruptcy and the criminal prosecution of key corporate executives.
The attributes that are essential to be measured by every organization are customer satisfaction index, SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats), known & emerging market potentials, performance of business processes, legal & statutory compliance, enhancement in strengths of competition, risks, internal/external fraud and traces of social engineering.
For AIG, internal factors of influence involve organizational culture and strategic decision-making, company’s vision and mission, staff relations and customer relations, etc. insurance industry is influenced by technological
cts for the purpose of illegitimate monetary gains is different from distortion of information without causing monetary losses, which can not be termed as fraud. The practice is usually costly for people and organizations once it occurs. It is therefore important to ensure that
5 pages (1250 words)Essay
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