The six biggest accounting firms in the United States have suggested that companies should be forced to submit to forensic audits every three to five years. These types of engagements would be aimed at finding fraud.
The six firms include PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, KPMG, Grant Thornton and BDO Seidman. They say their proposal is aimed at starting discussions about what investors should expect from auditors when it comes to fraud. (Incidentally, traditional independent audits are not designed to detect fraud, and the users of financial statements are mistaken if they think the audits will detect fraud.)
One accounting educator remarked that audit firms should just change traditional audits to be “done properly” and detect fraud.
I hate to complain…but I will do it anyway. 🙂
Why can’t you quote who said “audit firms should just change traditional audits to be done properly and detect fraud.”? One accounting educator isn’t as forceful of a statemenmt as Joe Smith, AICPA Lecturer, states…
When I read anonymous quotes I often wonder if they are made up. I doubt you made it up…but why not give the name so that the reader can determine the persons motivations, biases, and authority on the subject
I guess I didn’t name her because it’s not a name anyone would recognize anyway. But here you go: Mary Ellen Oliverio.
Is anyone aware of an available whitepaper that would detail the steps one would take to perform an enterprise wide forensic audit as described in the report?
Michael Tynan, CFE
The issue of making external audits more effective, especially with regard to fraud, was addressed in a July 2004 AICPA Discussion Memorandum called FORENSIC SERVICES, AUDITS, AND
CORPORATE GOVERNANCE: BRIDGING THE GAP.
http://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/Standards/DownloadableDocuments/2004_07_Forensic_Audit_Paper.pdf
I was part of the team that developed this paper. The purpose of the paper was to make observations and develop recommendations concerning forensic accountants’ services, including involvement with the independent audit team to (1) increase financial statement audit effectiveness in applying AICPA Statement of Auditing Standards (SAS) No. 99, Consideration of Fraud in a Financial Statement Audit (AICPA, Professional Standards, vol. 1, AU sec. 316), and (2) execute accounting-related fraud investigations.
Many public accounting firms, state accounting societies, and various other organizations responded to this paper and their views were virtually unanimous: make no changes in the way public accounting audits are being done; leave well enough alone. Consequently, the asset misappropriations and fraudulent financial reporting will continue unabated.