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    Auditor's and internal controls

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    1. The challenge with internal controls is that it is not always the line staff that break the controls. Most often, the person committing fraud is a manager responsible for the internal controls - someone with the authority to override the whole system. In this case, how do ensure that internal controls are in place? Also, do the new rules state that the auditor has to look for fraud?
    Respond to following:
    2. Is an auditor responsible for detecting fraud, or just making sure that the financial statements don't have material misstatements and conform to GAAP?
    An auditor shares responsibility with the company on detecting fraud, but with all risks involved, it is still likely that fraud can be missed. It is impossible to detect and find all areas of risk within a company. Their job is to attest to the accuracy of the financial statements after the study and testing of backup documentation. The auditor should attest the financial statements to a reasonable assurance that there is no misstatement or fraud. It is management's responsibility to ensure there is enough internal controls to reduce the risk of fraud.

    3.. What does an auditor test for in their procedures - and can these truly find fraud?
    Auditors test the internal controls of a company as well how the financial reporting is done, and how the programs associated factor into creating financial statements with no errors. Going through previous and current years ratios and statements can help and auditor to identify areas of major change that may cause more in-depth review and study. When performing testing it is believed that most fraud can be discovered with the adequate audit procedures. However, a weak audit team, a weak audit, or a lack of proper testing can increase the risk of fraud not being discovered. It truly comes down to the qualification, ability, and performance on the audit.

    4. What is the best audit opinion to have - qualified or unqualified or going concern?
    The standard unqualified opinion states that the statements are fairly representing the company in all aspects of financial opinion.

    5. If you were on the audit committee, what do you really think you've learned from the auditors communication?
    The auditors communication is going to identify areas of policies and weaknesses and estimates of how to create changes to make the company more compliant. Also, there will be information on how well the financial statements are completed in respect to quality. Offer any ideas on disagreements with management and whether they were resolved, or how they can be resolved, and how that may affect the financial statements. The auditors communication can tell me how to report better, how to protect my company, and how to offer quality financial statements.

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    Solution Preview

    1. The challenge with internal controls is that it is not always the line staff that break the controls. Most often, the person committing fraud is a manager responsible for the internal controls - someone with the authority to override the whole system. In this case, how do ensure that internal controls are in place? Also, do the new rules state that the auditor has to look for fraud?

    No the auditor does not have to look for fraud to be able to determine if the internal controls are sufficed for the organization. The auditor has the obligation to remain objective and not fully trust the manager while also not being entirely suspicious that illegal or fraudulent activity has been conducted by the manager. The management must ensure that internal controls are in place by instilling the appropriate measures in place that are in accordance with the auditing rules and regulations as well as ethical guidelines set forth by the organization. An ethics code is imperative for any organizational internal controls.

    Respond to following:
    2. Is an auditor responsible for detecting fraud, or just making sure that the financial statements don't have material misstatements and conform to GAAP?
    An auditor shares responsibility ...

    Solution Summary

    Auditor's and internal controls are examined.

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