Fraud and auditors' responsibility

Imagine someone tells you that the risk of contracting a certain rare disease this year is less than one percent. Unless you happen to know someone with the disease, you are not likely to be concerned about the possibility of such an unlikely event. This is what it is like to be an auditor looking for fraudulent financial reporting. ¹ Unfortunately, the public does not fully understand auditors’ responsibility for fraud or the rarity of its occurrence, creating an expectation gap between the audit profession and the public. It is also difficult for auditors to detect fraud because the perpetrators of fraud are often highly sophisticated executives who collude with their staff to deceive the auditors. Another difficulty is that unlike law enforcement and forensic accountants who investigate crimes after detection of a fraud, auditors do not have the benefit of hindsight. Auditors must consider fraud on every audit, although there is a less than one percent likelihood that a given client experiences fraud.