The role of the auditors is to perform auditing procedures to express an opinion based on reasonable assurance about whether the financial statements are free from material misstatement, whether caused by error or fraud.
Due to the nature of the audit, the evidence collected and the characteristics of the fraud, the external auditor cannot give absolute assurance. At best, the best auditing firms in Delhi have a responsibility to detect fraud in certain circumstances.
Whenever a major business disaster or high-profile fraud occurs, the first question that arises is how it could have happened with so many controls, a legal regime, and inspection and surveillance regulatory entities. The question that follows next is who is responsible.
Auditors are in the first line of fire; investigations are turned against them and audit reforms are instinctively thought of. The history of high-profile corporate fraud and auditing reforms has gone hand in hand.
The expectations that the interested parties have of the auditor are high since they consider him a guardian that guarantees the integrity, fairness, and transparency of financial information.
However, the role of the auditor throughout the value chain in accounting and financial information is not properly understood. The value chain begins with those who are engaged in financial transactions and continues with those who prepare the accounts and financial statements.
From then on, the chain moves through management, internal auditors, audit committees, among other actors.
Ironically, when fraud occurs, the responsibility goes directly to the auditor, who is really at the end of the chain, and not to those who had the responsibility to prevent and detect the fraud.
Major fraud cases point to the insensitivity, negligence, or complicity of management, including the chief executive officer and chief financial officer, in the preparation of accounts, financial reporting, and the design and operation of internal control systems.
Others have the responsibility for the prevention and detection of fraud: the Administration, the Internal Auditor, the Audit Committee, and the Board of Directors.
“Opportunity makes a thief” goes an old saying, so the opportunity or incentive to perpetrate fraud is provided by lax supervision, weak controls, collusion with a culture of least effort, etc.
Corporate fraud suggests a failure on the part of the Board of Directors, directors, auditors (both internal and statutory), and management alike.
The principle of shared responsibility would help to determine the root cause of fraud and the parties responsible for it, determine proportional responsibility, and take the necessary preventive and corrective measures to prevent the recurrence of such conduct.
Whoever has identified the fraud in a company must be more severe with those who commit fraud and other financial crimes and, in that search for the root cause, investigate to the last consequences to put those directly responsible behind bars.
However, back to the beginning, auditors have always been seen in the center of the stage when it comes to determining responsibility for the occurrence of fraud.
The external auditors, being the gatekeepers, undoubtedly assume greater responsibility and proportionate accountability.
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