Financial Fraud Prevention and Detection: Governance and Effective Practices

CHAPTER TEN

Getting a New Audit Report on the Financial Statements

AS A COMPANY WORKS THROUGH the problems following the discovery of financial fraud, one realization will loom larger and larger in the audit committee's mind: To a significant extent, the company's fate now lies in the hands of its outside auditor. Without an unqualified audit report, a company can find it almost impossible to function with any degree of normalcy. Lenders, regulators, its securities exchange, suppliers, customers, employees—each of these will remain exceedingly skeptical of management until the company's integrity is reestablished and its credibility restored. The audit report represents independent confirmation that the company has taken the right steps toward getting its financial house in order, in providing reliable financial data, and in restoring some level of institutional integrity.

For a board desperate to move beyond the problem, procurement of an unqualified audit report often becomes the key to a return to normalcy. Unfortunately, it can also seem like the quest for the holy grail. Auditors, too, are capable of emotional reactions to the discovery of fraud, especially when the fraud has developed in such a way that they can be counted among the victims. Just at the moment the company's need for an audit report is at its utmost, the auditor may be looking to the door. Auditor resignation in such a circumstance is far from unknown.

For that reason, the board's focus will soon shift to ...