External Auditors and Fraud Examiners - Essay Example

 External Auditors and Fraud Examiners INTRODUCTION Over the past few decades, large numbers of global organisations had to face several challenges when conducting intended operations, majorly due to financial discrepancies, identified as fraudulent conducts that could have been easily avoided subjected to effective implementation of auditing and fraud examination procedures (Absorb Environmental Solutions 1-3; Canadian Public Accountability Board 1-29; Mansoor 5-15). Poor auditing and lack of efficiency amid fraud examiners have influenced several corporate scandals over the last couple of decades. It is in this context that the regulatory institutions of the contemporary era is of the view that limitations in the auditing process prevailed principally owing to the unclear distinctions between the skills and objectives of external auditors and fraud examiners and hence, such a measure was adopted (International Federation of Accountants 5-15; The Economist 44-48). Later studies further revealed that the two concepts have considerable differences and therefore, should be managed in different professional domains to gain efficiency (O’Reilly-Allen and Zikmund 4). An external auditor’s responsibility is to assess the auditing results with more specification intended towards the effective identification of fraudulent activities in case of preparing financial accounts and financial statements. In this regard, it can be argued that an external auditor should understand specific rules and laws of auditing that would help the professionals associated with the entire process to prevent financial discrepancies or financial scandals when developing financial statements for an organisation. In this regard, it can be claimed that in order to fulfil the task objectives of the auditing process, an external auditor should possess certain skills, which can enhance public confidence on audit report and ensure unbiased financial, accounting and taxation practices (International Federation of Accountants 5-15; The Economist 44-48). On the other hand, the fraud examiners are those professionals, whose primary responsibility is to provide of anti-fraud training and education to the organisations and business individuals with the intention of preventing fraudulent activities in the business environment. In this regard, the Association of Certified Fraud Examiners (ACFE) has introduced specific guidelines and responsibility for the fraud examiners for preventing the fraud occurrence in the business and tried to inspire public confidence. Simultaneously, it can be argued that ACFE has tried to enhance the integrity as well as objectivity of the fraud examiner profession. According to the report of ACFE, it can be notified that a fraud examiner should have certain set of skills and knowledge for understanding the laws, rules and principles for resolving the allegations of fraud (1). THESIS STATEMENT In this particular essay, the objective is to critically evaluate the skills and objectives of external auditors and fraud examiners from a comparative point of view. Correspondingly, the study intends to identify the set skills of auditors and fraud examiners with the aim of detecting financial fraud and other fraudulent activities at a wider scale. Moreover, this particular study aims to identify the functions of external auditors during the execution of audit work in comparison to fraud examiners, explaining their distinct roles, which is in general, to express the views regarding the financial statements and to detect fraudulent activities respectively. LITERATURE REVIEW Task Objectives of the External Auditors. International Ethics Standards Board for Accountants revealed that in the early 21st century, external auditors have become more sensitive regarding their roles and responsibilities, which have enhanced the quality of auditing process (41-57). At the same time, it is also identified that skills and efficiency of the external auditors have prevented and reduced the impact of fraud and fraudulent activities during the business occurrence or in case of preparing financial statements. Simultaneously, it can be claimed that external auditors have reduced the tendency of unethical practices among the organisations when conducting business operations, which has helped modern business entities to improve as well as increase the level of public confidence regarding the auditing work and in case of auditing reports. Simultaneously, external auditors can also safeguard the interests of investors, creditors, stakeholders and workers among others (The Institute of Internal Auditors 1-21; The International Ethics Standards Board for Accountants 41-57). In the report of The Federal Financial Institution Examination Council, it was further argued that roles of external auditors encompass the independent operations of financial statements for ensuring utmost genuineness and transparency of the collected data (45-55). In this regard, it can also be claimed that external auditors can provide opportunities to an organisation to maintain the impact of the financial report in an ethical manner. On the other hand, it can be argued that by executing adequate external auditing procedure, auditors can assist an organisation to maintain accuracy in its financial report. Simultaneously, it can also be argued that independent and objective based views of external auditors can help an organisation to maintain the overall internal structure more accurately to enhance reliability (The Federal Financial Institution Examination Council 1-6; The University of Mumbai 150-170). Objectives of the Task of a Fraud Examiner. According to the report of Association of Certified Fraud Examiners (5-6), fraud examiners are recognised as the group of certified professionals, who must possess the skills and abilities to perform their roles of identifying or investigate the legal as well as financial frauds with the intention to prevent unethical practices. On the other hand, fraud examiners have assisted modern organisations to execute appropriate auditing procedures, which further helped in regaining the goodwill of the organisations for increased efficiency (Association of Certified Fraud Examiners 5-15). On the other hand, it can be claimed that unethical business practices usually do not allow organisations to enhance accuracy on identifying or detecting fraud occurrences and fraud activities during the business operations, which may lead to certain confusions among the staff and affect the concept of best practices. Similarly, it can be mentioned that fraud examining and poor examining culture of the fraud examiners can manipulate operational efficiency in an adverse manner and hamper the reputation of the organisation at large. Simultaneously, unbiased examining practices of the fraud examiners can also reduce authenticity and transparency of the business reports as well as business decisions, which may hamper the reputation of the organisations as well as can lead to extensive challenges for a business entity (The Federal Financial Institution Examination Council 25-33). Skills Required for an External Auditors. According to the viewpoints of Mansoor, in order to execute the audit process effectively, it is essential for the external auditors to possess certain skills and competencies (30-40). In this regard, the report of KPMG Audit Committee Institute claimed that by developing the skills and competencies and by emphasising towards the objectives of the auditing process, it would be possible to reduce the impact of fraudulent activities for an organisation during the business operations (1-12). At the same time, it can also be argued that skills and abilities of the external auditors can assist a business organisation to make reliable business decisions for the future. Skills and competencies of the external auditors usually help an organisation to accomplish its long-term objectives by ensuring the functions of the business process in an ethical manner (KPMG Audit Committee Institute, 1-12; Mansoor, 30-40; Natural Sciences and Engineering Research Council of Canada 1-3). In this context, the importance of external auditors is very high as the process helps modern organisations to verify the genuineness and reliability of public accounting and finance. Moreover, task objectives of external auditors is to encompasses the authenticity of financial accounting process for deriving a fair and true picture of the organisations, owing to which, it often collides with the roles of an external auditor (International Civil Aviation Organization 1-15). Clark thus asserts that external auditors play an influencing role as they help in case of strategising plans, for evaluating and controlling the entire business process more significantly. At the same time, utilizing the experience is also one of the most crucial skills for an external auditor, who possesses the potential of investigating or identifying fraud in terms of financial and legal perspectives. Additionally, external auditors are responsible for the sustainable growth of the overall organisation (1-4). In correspondence, the roles and responsibilities of external auditors are highlighted below for better understanding. Providing an Opinion on Financial Statements From a generalised perspective, external auditors are responsible for providing assurances regarding the financial statement of the organisation. In this regard, it can be claimed that auditors are responsible for ensuring the fairness and genuineness of an organisation’s financial statement. Hence, through proper scrutinizing of data of the financial statements, external auditors can provide reasonable assurance or opinion regarding the financial reports (Garcia “Roles and Responsibilities of External Audit Firms”; The International Federation of Accountants 36-47). Understanding the Entity and Its Environment External auditors’ responsibilities also extend towards identifying and understanding the entire business environment recognising the operations and internal controlling system. At the same time, fraud examiners should examine the ‘Electronic Accounting Information’ system to ensure that the collected data are not being compromised. Additionally, it is also essential for an auditor to recognise the regulations of an organisation, when preparing the financial statement (Caswell and Allen 57-63; Garcia “Roles and Responsibilities of External Audit Firms”). The auditor needs to maintain the ethical practices while conducting auditing and providing error free reports, which are again in lieu to the responsibilities of fraud examiners, i.e. to keep monitoring the entire reporting and auditing processes. Obtaining Sufficient Evidence to Form an Opinion Obtaining sufficient evidences of financial statement can assist both an external auditor and a fraud examiner to identify the execution of auditing process when implementing external auditing function. In this regard, it can be claimed that by identifying or obtaining the evidence of financial report, organisations can enhance the goodwill in the operating market. Simultaneously, genuine financial report can also help an organisation to attract the attention of the investors, banks, lenders and stakeholders. Thus, it can be mentioned that the responsibility of a fraud examiner is to identify or obtain sufficient evidence of financial statements without financial errors (Caswell and Allen 57-63; Garcia “Roles and Responsibilities of External Audit Firms”; Pearson Education Ltd 7-24). Auditors’ Independence It is often argued that fraud examiners tend to obstruct auditors’ independence to an extent owing to their interferences during investigations. In this regard, it can be claimed that lack of auditing independence can initiate critical challenges for an organisation and thus, the requirement to enact particular standards and norms will be crucial in this regard that would prohibit undue interferences from the either party when conducting their functions. However, it must be noted that lower level of credibility and assurance can hamper the interests of an organisation. It is in this context that appearance and attitude/ behaviour are the key components for an external auditor or examiner through which, it is possible to enhance the quality of auditing work. Arguably, by ensuring honesty and accountability, an external auditor can meet the requirements of the auditing process more efficiently, without inhibiting his/her degree of independence, as well as ensuring efficiency in the auditing process (Public Company Accounting Oversight Board 1-26; Garcia “Roles and Responsibilities of External Audit Firms”). Skills Required for a Fraud Examiner. In order to highlight the roles and responsibilities of a fraud examiner, it can be claimed that these professionals need certain skills and abilities for identifying financial or legal fraudulent activities, which range from strong theoretical understanding to enviable practical experiences. In this regard, identifying and understanding the business standards and processes helps an auditor to recognise the fraud operations conducted intentionally or unintentionally throughout the business practices. Besides, it can be claimed that for reviewing the evidences and executing the forensic analyses effectively, it is essential to understand technological aspects more appropriately by the fraud examiners. Moreover, in order to fight fraud, it is mandatory to possess substantial understanding of the international business environment in terms of recognizing diverse privacy laws, frameworks and standards (Association of Certified Fraud Examiners 40-57). Contextually, based on the report of Association of Certified Fraud Examiners, it can be asserted that financial statement is one of the most essential constituents for an organisation, through which, companies can evaluate and identify the overall performances of a financial period (51-80). In this regard, it can be claimed that through the assessment of financial reports, organisations are making decisions for their future growth. Unethical auditing practice and fraud examining may therefore affect the overall understanding of the financial statements. Besides, it can be also claimed that poor auditing may hamper the interests of an organisation by influencing the decisions in an adverse manner (Romanenko 1-8; Association of Certified Fraud Examiners 50-60). Therefore, the process of fraud examining is crucial to get a clear picture and transparent view of the organisations’ finances for its long-term sustainability in the market. Based on the report of Association of Certified Fraud Examiners it can be illustrated that financial statements are the most essential aspects, through which, the success of organisations can be judged and its performance can be observed accurately (41-58). At the same time, ethical or fair fraud examining practices shall help an organisation to determine, whether to buy or sell securities for future profitability. In addition, it can be claimed that financial statements help in taking appropriate strategic decisions for the benefit of the organisation and its related stakeholders for greater sustainability (Association of Certified Fraud Examiners 71-80; Garcia “Roles and Responsibilities of External Audit Firms”). In correspondence, the roles and responsibilities of a fraud examiner are highlighted below for better understanding. Understanding the Business It is highly essential for the fraud examiners to understand the rules and processes of the business operations. Correspondingly, when the business environment is observed as booming in the international context, fraud examiners must also possess adequate understating of internal applicable laws and policies. Simultaneously, it is also necessary for the fraud examiners to recognise the potential fraud types of the contemporary era, which may influence genuineness and transparency of the financial reports in case of business operations (Munro and Stewart 1-23; Mansoor 11-25). Leverage Technology In the contemporary era, fraud examiners should consider certain aspects for executing the scrutinizing process more transparently. In this regard, it can be claimed that fraud examiners need to understand relevant information and data for recognizing or detecting the fraudulent activities when conducting business operations. At the same time, by reviewing digital evidence or by incorporating technological tools, fraud examiners can identify unethical practices of business operations. Additionally, it can be claimed that an auditor’s responsibility is to conduct forensic analysis of the business process for identifying or detecting fraudulent activities, which however, collides with the responsibilities of fraud examiners at large (Ernst and Young 19-38; Mansoor 41-50). Versatile Work Experience Similarly, it can be argued that fraud examiner’s responsibility is to understand and identify the fraud cases during the business operations. In this regard, it is essential for the fraud examiners to gather versatile experiences from the fraud cases with the intention of in-depth investigation of the fraudulent activities of the organisation (Ernst and Young 19-38). Understanding the Relevance of the Information In order to be a successful fraud examiner, it is essential for the professional to understand the relevance of the information of a company, which may assist to identify the ethical practices and fraudulent activities, otherwise, hampering the interests of an organisation. To be effective, it is essential for a fraud examiner to identify the evidences of the fraud occurrence. In this case, it is also necessary for the fraud examiners to be able to identify the base of the information, where it resides (Munro and Stewart 1-23; Mansoor 11-25). Possessing Capabilities Fraud examiners are needed to enhance their capabilities with the intention of identifying or understanding the different privacy laws, security standards as well as frameworks, which can helps fraud examiners to identify the errors and fraudulent activities of the business process. Furthermore, it can be argued that through enhancing processing capabilities fraud examiners can understand, utilize and bring value to business organisations (Munro and Stewart 1-23; Mansoor 11-25). Roles of External Auditors. According to the report of Institute of Management in Government, external auditors are recognised as professionals, whose role is to scrutinize the financial statements of a business entity for ensuring the genuineness, reliability and transparency of the financial statements or reports (1-10). In this regard, it can be argued that an external auditor’s responsibility is to examine and identify whether the records, accounts as well as vouchers of a business are drawn up properly. It is worth mentioning in this context that in the contemporary era, an external auditor’s responsibilities are no way limited to only examining the accounting process solely (Institute of Management in Government 1-15). Rather, it focuses on scrutinizing and verifying the authenticity of the financial report and financial status of an organisation, which indicates a significant loophole of the auditing process, but covered in the fraud examination procedures thereto (Association of Certified Fraud Examiners 15-26). According to the report of Association of Certified Fraud Examiners, fraud examiners are recognised as the group of certified professionals, who must possess the skills and abilities to perform their roles of identifying or investigating the legal as well as financial fraudulent activities with the intention to prevent unethical practices (5-15). Roles of Fraud Examiners. In this context, Mansoor argued fraud examiners’ responsibility is to identify or detect errors or fraud occurrences during the preparation of financial reports (25-35). Simultaneously, fraud examiners can increase the morale or reliability of the staff members of an organisation, which directly or indirectly prevents unethical operations during the preparation of financial report by means of intrinsic motivation. Thus, it can be argued that fraud examiners can help an organisation to reduce errors or mistakes during the preparation of financial reports emphasizing towards the training and education, which can prevent fraud occurrence during the business functions. In this regard, Clark argued that fraud examiners could assist an organisation to practice ethical operations when preparing the financial records to increase investors’ confidence (1-4). Similarly, adequate fraud examining process helps organisations in protecting the financial interests for modern organisations. Fraud examiners can therefore help an organisation to take managerial decisions more significantly for increasing its sustainability in the long run. Additionally, it can be claimed that fraud examiners task or objective is to maintain or ensure the efficiency through emphasising towards the risk management initiative (Clark 1-4; Mansoor 35-40). CRITICAL EVALUATION OF ROLES OF EXTERNAL AUDITORS AGAINTS THE ROLE OF FRAUD EXAMINERS In order to highlight the similarities and differences between the roles, responsibilities, skills and objectives of an external auditor and fraud examiner, it can be asserted that an auditor’s duty is to examine the authenticity of the accounting process and financial statement with the aim of maintaining the reliability of the organisation and its financial statements. In this context, Adeyemi and Akinniyi claimed that Securities and Exchange Commission (SEC) have witnessed several fraud financial reports, which directly affected the operations of the capital market (247-267). At the same time, it can be also claimed that unbiased and unethical approaches have affected the growth of modern Multinational Corporations (MNC) and has eventually led towards corporate failures. Contextually, according to the report of Basel Committee on Banking Supervision, it is notified that in the contemporary era, large number of corporate scandals and financial discrepancies have been duly identified and amended due to the existence of external auditors (31-42). Whereas, it can be argued that a fraud examiners’ role is to detect the fraud occurrence and fraudulent activities of the business organisations, which may affect operational as well as functional efficiency of an origination. Moreover, the task objective of the fraud examiners is to monitoring and track business operations for preventing fraudulent activities (Bakar and Ahmad 131-142). Similarly, it can be claimed that lack of accountability of the external auditors’ can also affect the overall business process in an adverse manner. Based on the report of Association of Audit Committee Members, audit committees’ responsibility is to examine the integrity and reliability of a company’s financial statement (11-15). In this regard, according to the viewpoint of Bakar and Ahmad, larger number of organisations around the globe has been witnessing similar kind of challenges in the contemporary era due to the unethical practices of external auditors (131-142). On the other hand, it can be argued that fraud examining and bias auditing approaches have influenced high rate of corporate scandals, which has also affected the operations of corporate governance (Adeyemi and Akinniyi 247-257; Association of Audit Committee Members 1-15; Bakar and Ahmad 131-142). CONCLUSION Based on the above-conducted study, it is identified that there are two factors, which may influence the functional efficiencies of an external auditors and fraud examiners. In this regard, it can be mentioned that independence of mind and independent appearance can influence the overall auditing functions of an auditor. Apart from this, based on the study it is also identified that unethical approach and biased treatment can hamper the reliability and transparency of an auditing work and lead to corporate scandals. Moreover, poor auditing practices or fraud examinations can also hamper the governance environment as well as reliance of the audit work. It is to ensure that these discrepancies are avoided to the desired and sustainable extent, the role of fraud examiners have been specified. Thus, it can be suggested that by maintaining the reliability and genuineness of the auditing process, fraud examining can be more effective. In order to conclude the topic it can further be stated that through emphasising on responsibility and honesty, auditors can enhance the quality of auditing process, which can assist in maintaining financial sustainability for the future in the global arena. Moreover, both fraud examiners as well as auditors have their roles in maintaining the transparency of financial statement through ethical consideration. Works Cited Absorb Environmental Solutions. “General Principles of Auditing.” Introduction (2008): 1-3. Print. Association of Audit Committee Members. “Audit Committee Essentials: The Annual Auditor Assessment.” Reports-and-publications (2013): 1-15. Print. Association of Certified Fraud Examiners. “Report to the Nations on Occupational Fraud and Abuse.” Global Fraud Study (2014): 1-80. Print. Basel Committee on Banking Supervision. “External Audits of Banks March.” Bank of International Settlement (2014): 1-42. Print. 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