After last several big accounting frauds that Unites States has gone through, auditors now carry a burden heavier than ever on their shoulders. Chap 5 introduced the different types of audit reports that can be issued when auditing a company’s financial statements, and also raised issues like loyalty to bosses and co-workers, expectation gap and internal control.
When a fraud initiates, it is usually not because the involved person intends to commit a crime or he/she is immoral, instead, in most cases, it is because of pressures from financial situations or peer group/ upper management. This is one of the aspects in the fraud triangle explained in the book. Many individuals who grow up with moral values like honesty and integrity fail the test when facing financial hard times. People who are loyal to their co-works and managers find it hard to say no when they discover the fraudulent acts committed by the peers. Should they do the right thing pointing them out or just keep their mouth shut to help their friends out? Of course we all know the former is the right answer on paper, but how many of us are confident that we would do the same in reality? As the book states, loyalty is the moral value that should never suppress other values. Our loyalty to the general public and financial statement users comes before that to the upper managers and co-workers. Realistically speaking, we should blow the whistle also for our own sakes, just like what Sherron Watkins did, because once we make the first step to cover up, we are part of the fraud.
Another aspect in the fraud triangle is the opportunity to commit fraud. Internal control plays a big role in minimizing these opportunities. Auditors nowadays not only issue audit reports on financial statements, they also have the responsibility to audit the efficiency and effectiveness of the client company’s internal control,