Auditing Responsibilities in case of Error and Fraud
d The primary
responsibility of preventing frauds and errors from creeping into
financial statements is that of the management of the enterprise. While
planning any assignment for Auditing, the Auditor must consider the
risk of misstatements in financial statements resulting out of frauds
and errors.
Error is a mistake in gathering or processing data which goes into the
preparation of the financial statements. An incorrect accounting entry
arising out of oversight is also an error. A mistake in application of
the generally accepted accounting principles is also an error.
Whereas by the term fraud we mean and understand an intentional act by
one or more individuals who act in collusion to achieve undue and
illegal advantage. The auditor is definitely concerned with fraudulent
acts which cause a material misstatement in the financial statements.
Frauds may be committed by the management or by an employee
While auditing the auditor needs to keep his eyes and ears open and
must consider the fraudulent activities if detected by him in his
reports. Fraudulent financial reporting involved preparation of
misstatements or omission of certain disclosures in the financial
statements with the intent to deceive the users of those financial
statements.
The auditor while auditing must ensure that he reports any
misappropriations of assets which has come to his notice.
Misappropriation includes embezzlement of receipts, physical stealing,
fictitious payments of bills and expenses. Most of these are usually
supported by fictitious documents in order to conceal the fact that the
assets are missing.
The prime responsibility of preparation of financial statements lies on
the management of the enterprise. Merely getting the auditing completed
by any means does not absolve them of their responsibility of
preparation of the misleading financial states whether by design or by
accident.
The auditor when auditing must the auditing standards prescribed to
provide a reasonable assurance the financial statements presented to
him for audit a free from material misstatements. The fact that
auditing has been done does not make the auditor liable for any deep
rooted fraud or errors in the financial statements.