Question

When an Auditor finds misstatements in entities financial statements which may be the result of fraudulent act, what should be the role of an auditor under that situation?

Answer 1

For better understanding first of all let’s understand something basic about misstatements.

Material misstatements or misstatements refers to such conditions when there is something misstated in the financial statements or something ommitted from the financial statements. Due to such misstatement important economic decisions are normally affected.

As per requirement of the question, now let’s know the role of an auditor when auditor finds misstatements in entities financial statements,

Following will be the role of an auditor in this case;

1. Auditor will make sure about such misstatements with the help of resonable documentory proofs. If auditor is abosolutely sure with these misstatements then he will take further required actions.

2. Auditor will formally inform concerned authorities in the management of the company within stipulated time.

3. If auditor find that management is involve in such fraud then auditor need to communicate to the higher governance body for quick & effective actions.

4. If such higher governance body are also suspicious then auditor will take help of legal advice for reasonable actions.

5. Auditor will make sure that these type of misstatements should come in the notice of all relevant stakeholders of the financial statements so that these stakeholders can not be negatively affected from such misstatements.