Not All Are Fraud Audits

BY CHARLES CHAZEN

Not All Are Fraud Audits

“...And Nothing But the Truth: Uncovering Fraudulent Disclosures” ( JofA, July01, page 47), contains interesting recommendations—but to be used under what circumstances?

The article leads one to believe the recommended procedures should be added to every audit program as standard steps. I disagree.

SAS no. 82, Consideration of Fraud in a Financial Statement Audit, makes clear that the auditor has broad responsibilities in detection of fraud. However, the statement does not require every audit engagement to become a fraud audit. Audit procedures may lead to some of the steps recommended in the article, but without a “red flag” requiring the auditor to expand or modify his or her audit procedures, I believe the following suggestions represent overkill:

Check public records at the federal or state level to look for undisclosed liabilities.

Interview recently departed employees and ask if they had any suspicion of management fraud.

Review corporate records maintained by the state to find whether a client’s officers are also listed as officers of another corporation, in search of related-party transactions.

Review published material covering the client or its key officers, looking for possible conflicts or controversy.

Ask for unrestricted access to the client’s files so the auditor can go on a fishing expedition.

Skepticism is the auditor’s middle name, but that doesn’t mean that every audit should become an adversarial procedure.

Charles Chazen, CPA
Los Angeles

SPONSORED QUIZ

How well do you know small business?

There are over 30 million small businesses in the U.S., and many of them are optimistic in their outlook. Are you familiar with the obstacles and opportunities they are facing? Test your small business acumen with this quiz sponsored by Chase Ink®.

SPONSORED REPORT

In focus: Payroll

Providing payroll services that comply with ever-changing regulations and meet evolving employee and employer demands is no easy task. Paychex's Tom Hammond discusses common payroll considerations for CPA firms.