A Report by Anti-Fraud Collaboration suggests Existence of Expectation Gaps within Financial Reporting
Anti-Fraud Collaboration recently released a report that suggests that audit committee members, internal auditors, external auditors and the financial executives has different opinions as to who is responsible for preventing and detecting fraud in financial statements. It stated that there are significant expectation gaps among these four groups.
The Anti-Fraud Collaboration stated the greatest differences exist in the following three areas:
i. Whose responsibility it is to deter fraud in financial reporting
ii. Is appropriate balance stricken between skepticism and trust
iii. How much ability each group has to detect fraud
The report is based on a recent survey and an in depth round-table discussion based on the findings of the survey.
FEI President and CEO Marie Hollein, one of the participants at the round-table discussion, commented that ""It's everyone's role to be part of deterring and detecting financial reporting fraud, and how you carry that out depends on where you sit and your experience".
87% of the respondents were of the view that financial executives were primarily responsible for deterring fraud while 20% suggested that external auditors were responsible for deterring fraud.
46% of the internal auditors cited that they strike the right balance between skepticism and 70% of the external auditor were of the belief that they strike appropriate balance. However both internal and external auditors highlighted that skepticism was key to performing their functions.
52% of the respondents believed that financial executives were responsible for detecting fraud, 31% said internal auditors were responsible, 12% said external auditors were responsible, and 6% said board/audit committee members were responsible.
96% of the board members suggested that they were confident that the other three groups have the ability to detect fraud in financial reporting. 75% of the board members were confident in their own ability to detect fraud in financial reporting. Only 36% of the auditors showed their confidence in the ability of the board members to detect fraud.