Question

relevance and benefits of holding public accounting firm more accountable for the detection of fraud

Answer 1

Ans:Generally audit by a public accounting firm is a function of assistance offered to the leadership of that entity in order for them to better manage their activities; it expresses judgments on all decisions taken by the leadership that ensure the normal and efficient functioning of its activities; and its objective is to create added value.

The relevance and benefits of holding public accounting firm for the detection of fraud are as follows:

At first, let us understand that the primary responsibility for the prevention and detection of fraud rests with the governing body and management. Management’s responsibilities include creating an environment where fraud is not tolerated, identifying risks of fraud, and taking appropriate actions to ensure that controls are in place to prevent and detect fraud. The governing body is responsible for ensuring that management is carrying out the tasks assigned to them in relation to fraud risk and prevention, as well as understanding the environment to determine if management can override or influence the controls in place.

Now some of management’s responsibilities for the prevention and detection of fraud can be delegated to public accounting firm.

Firstly, public accounting firm are generally well-versed in evaluating the potential and probability of fraud, errors, or noncompliance and can review internal controls for effectiveness.

Secondly, If public accounting firm is structured so that they report directly to the board or council, then they are considered to be independent of those in management and are not influenced or threatened by management.

Thirdly, public accounting firm sometimes use a series of tests, sampling, and analytics to reach their conclusions; however, every transaction is not reviewed or audited.Therefore sometimes it may become difficult for public accounting firm to detect misstatements resulting from fraud than misstatements resulting from errors.

Fourthly, Public Accounting Firm also review any large or unusual transactions or journal entries that occur outside the normal scope of business.They also ensure that there are proper controls in place to deter any possibilities of fraud.

Fifthly, Public Accounting Firm reviews journal entries and interview the company's accountants on procedures to uncover potential risks. They generally meets with management to gain an understanding of procedures and then test those procedures for SOX compliance.

Lastly, they generally maintain a professional distance and independence for their activity and are generally follows professional skepticism for the strictly prevention or detection of fraud.