Question

1. What are the rules regarding an auditor's responsibility to detect fraud? In what situations could the auditor be liable?

Answer 1

Rules regarding an auditor's responsibility to detect fraud are: 1. The main responsibility for detecting fraud lies with management and those charged with governance. They need to implement sufficient internal controls that helps management in detecting frauds .

2. Auditor is responsible:

• to obtain reasonable assurance that the financial statements are free from material misstatements. (material misstatements can be international misstatements that are called as frauds or they can be unintentional misstatements that are called as errors.)
• For obtaining such reasonable assurance, the auditor is liable to maintain professional skepticism ( that is he needs to have an attitude of questioning and being alert to the situations that indicates risk of misstatements).
• If auditor identifies risks of fraud or error , then he is responsible to respond appropriately to such risks i.e. he needs to develop an audit plan to assess further.

The responsibility to detect fraud lies with management and auditor can't be held liable for not detecting frauds because audit has certain limitations such as timing, management involved into fraud and others. Auditor is responsible to obtain assurance and not to detect frauds.