Chapter 4 EXTERNAL AUDITING AND FORENSIC INVESTIGATIONS: CONCEPTUAL AND PROCEDURAL DIFFERENCES

LEARNING OBJECTIVES

After completing this section, you should be able to do the following:

     Recall statistics about fraud detection.

     Identify differences between external auditing and forensic investigations.

     Identify differences between an external auditor's and management's responsibilities with regard to fraud as contained in professional standards.

Overview

A study by the Association of Certified Fraud Examiners, “Report to the Nations on Occupational Fraud and Abuse 2016 Global Fraud Study” noted that frauds initially detected by external auditors .accounted for approximately 3.8 percent of all global fraud cases. Most frauds were initially detected by tip (39.1 percent), by management review (13.4 percent), by internal audit (16.5 percent), and by accident (5.6 percent).1 These rankings of how fraud was initially detected are consistent with other studies conducted by national public accounting firms during the past two decades.

Historically, many corporate and other stakeholders have believed that the external auditor is responsible for the detection of fraud—regardless of the dollar amount. This expectation gap between these stakeholders' beliefs about the auditor's role and the external auditor's professional responsibility with regard to fraud was narrowed somewhat by the issuance of professional standards in the 1980s.

These standards evidently did ...

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