Resolving Audit Issues Case Study

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Resolving Audit Issues
One of the experts noted that auditors fail to effectively pass on information within the audit team. A lower-level auditor may identify information such as a transaction that may indicate fraud exists but then not effectively share the information with someone with the expertise to identify it as a fraud cue. Two experts indicated deficiencies in resolving issues that arise with one noting that auditors fail to effectively resolve issues and conflicts with the client.

This study is the first to develop and then empirically investigate a multi-dimensional framework of factors and their elements affecting auditors’ failure to detect financial statement fraud. We developed our framework through analysing prior
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The PCAOB since its inception in 2003 has included financial statement fraud among its top priorities of standard setting as evidenced by discussions in the Standing Advisory Group SAG meetings.

The wave of financial scandals at the turn of the 21st century elevated the awareness of fraud and the auditor’s responsibilities for detecting it. The frequency of financial statement fraud has not seemed to decline since the passage of the Sarbanes-Oxley Act in July 2002. For example, the 2005 biennial survey of more than 3,000 corporate officers in 34 countries conducted by PricewaterhouseCoopers PwC reveals that in the post-Sarbanes-Oxley era, more financial statement frauds have been discovered and reported, as evidenced by a 140 percent increase in the discovered number of financial misrepresentations from 10 percent of companies reporting financial misrepresentation in the 2003 survey to 24 percent in the 2005 survey. The increase in fraud discoveries may be due to an increase in the amount of fraud being committed and/or also due to more stringent controls and risk management systems being
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What constitutes “reasonable assurance” has been extensively and inconclusively debated in the literature and within the accounting profession PCAOB 2005; Rezaee 2004; Harrington 2003 .5 The lack of a commonly accepted definition of reasonable assurance coupled with limitations of audit methods in identifying fraud, cost constraints of audits, and high expectations by investors have widened the expectation gap regarding auditor responsibility for detecting financial statement fraud. The CEOs of the six largest International Audit Networks believe that there should be a constructive dialog among investors of global companies and capital markets, auditors, and regulators to narrow the “expectation gap” International Audit Networks

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