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The main challenges:
- Conflict of interest - Audit firms are profit-driven entities, and face pressure to act in their clients’ favour.
- Race against time – Pressure to not look too thoroughly at figures in order to get the job done on time.
- Great expectations – Investors expect auditors to detect fraud, because they have the access and the ability to. But there is an expectation gap in what auditors do and what the investing public think they do.
- Establish an independent escrow authority handle the negotiations and payments and define the auditing scope. Audit reports should then be sent to this central regulatory authority.
- Stricter enforcement and actual penalties for auditors that have plainly been negligent, or criminal, in their tasks.
- Whistleblowing policy to encourage reporting without the fear of repercussions.
Not finding fraud On the face of it, an auditor’s job is to ensure that a company’s financial statements represent a true and fair view of the company’s financial performance and position, free from any material bias or error. If the audit uncovers financial fraud, the auditor is expected to report it. This also means the auditor does not expect to purposefully sniff out financial fraud. “What the auditor is expected to do, and is already doing, is to minimise the risk of material misstatements arising from fraud and error,” says El’fred Boo, associate professor of accounting at Nanyang Business School (NBS). “The auditor is required by the professional standard to assess risks, including fraud risks. If there is fraud, and to the extent that it results in a material misstatement, the auditor is expected to be able to detect the material misstatement when appropriate audit procedures are performed.”
