4 ms·

This “paper” is shit. They get the most basic function of auditing wrong. Auditors are taught from the beginning that they do not look for fraud. You should no

This “paper” is shit. They get the most basic function of auditing wrong. Auditors are taught from the beginning that they do not look for fraud. You should not expect auditors to detect fraud. My wife is in finance and I have a dozen Big 4 auditors as friends. This is one of the basic things hammered into every auditor from day one. Auditors do not look for fraud. If they happen to find fraud they need to report it. But they don’t go into an audit looking for fraud. Second, using restatements as a measure of fraud is stupid. restatements can happen for a bunch of reasons, the least of which are fraud. Very often people make mistakes and thats why every company has a tolerance of error called materiality. Sometimes errors aren’t detected for many quarters and would cause a restatement. As well the auditing rules leave room for interpretation. There is always dynamic tension between the accounting team of a company vs the auditors. The fact that a company and auditors gets things wrong and then for this to be classified as “fraud” is stupid. It’s most often times not fraud. Sometimes the audit partner changes and their opinion is vastly different from the previous partner which causes a lot of regurgitation of the financials and likely a reevaluation of the contract. But the audit partner doesn’t want to lose her job or go to jail so I think for the most part having strict laws and tough punishments is very motivating for auditors. That said, I worked for a company that got shut down for true fraud. The cfo and ceo lied about sales in order to make their numbers. They both went to jail but this is the most basic fraud and they went to jail for a long time.

denton-scratch 4y ago
> Auditors are taught from the beginning that they do not look for fraud. To be fair, the authors defined fraud very loosely. "As we explain in Section 2, we use the term “fraud” loosely, since what we measure is some form of misconduct or alleged fraud." Auditors are expected only to certify that a company's accounts are a "true and accurate" representation of the company's financial position. Corporate fraud is fantastically expensive to investigate and prosecute; fraud trials sometimes last years, and some fail simply because jurors died of old age. If you don't prosecute crimes, then you are encouraging them; I imagine the incidence of fraud is much greater than the authors estimate.
spoonfeeder006 4y ago
Whats the point of auditing then if its not to find fraud?
- hef19898 4y ago
  Compliance to rules and regulations, as well as sufficient internal controls. If you, say, make up bank accounts and fake the account statements an auditor, say, EY, might just acceot those at face value. Until your company, say Wirecard, is forced by external pressire from short sellers and the FT, to conduct another audit from another auditor and everything falls appart.
- convolvatron 4y ago
  plausible deniability
- LatteLazy 4y ago
  Auditing is checking someone added up the numbers right and put the right things in the right columns. Auditing is not actually checking the money exists or the transactions were real or the products paid for were really delivered etc. If I say Acme Inc received 2$ in revenue and spent 1$ in costs, it's cash on hand should go up 1$. If I get that right, I pass that bit of the audit. Whether acme actually got paid or not or even exists is not the auditors problem: just 2-1=1.

denton-scratch 4y ago

> Auditors are taught from the beginning that they do not look for fraud. To be fair, the authors defined fraud very loosely. "As we explain in Section 2, we use the term “fraud” loosely, since what we measure is some form of misconduct or alleged fraud." Auditors are expected only to certify that a company's accounts are a "true and accurate" representation of the company's financial position. Corporate fraud is fantastically expensive to investigate and prosecute; fraud trials sometimes last years, and some fail simply because jurors died of old age. If you don't prosecute crimes, then you are encouraging them; I imagine the incidence of fraud is much greater than the authors estimate.

spoonfeeder006 4y ago

Whats the point of auditing then if its not to find fraud?

hef19898 4y ago
Compliance to rules and regulations, as well as sufficient internal controls. If you, say, make up bank accounts and fake the account statements an auditor, say, EY, might just acceot those at face value. Until your company, say Wirecard, is forced by external pressire from short sellers and the FT, to conduct another audit from another auditor and everything falls appart.
convolvatron 4y ago
plausible deniability
LatteLazy 4y ago
Auditing is checking someone added up the numbers right and put the right things in the right columns. Auditing is not actually checking the money exists or the transactions were real or the products paid for were really delivered etc. If I say Acme Inc received 2$ in revenue and spent 1$ in costs, it's cash on hand should go up 1$. If I get that right, I pass that bit of the audit. Whether acme actually got paid or not or even exists is not the auditors problem: just 2-1=1.