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5 A Look at the Record on Auditor Detection of Management Fraud Donald R. Ziegler Price Waterhouse & Co. Concluding that a perfect game has been pitched is a relatively simple matter. If the winning pitcher goes a full nine innings, during which his team has scored at least one run, and the first twenty-seven batters on the losing team fail to reach first base, we have a "perfect game." A single hit ruins a "perfect game" and even though the pitcher can claim 96.4% effectiveness, few people will long remember his performance. It's quite the opposite where auditors and management fraud are concerned. Turn in a "perfect record" and get no credit for it—that's what auditors are paid for, isn't it? But turn in a 96.4% performance and you've made it into the Hall of Fame. When it comes to detection of management fraud, what is a perfect record? In its strictest sense, it can only mean that every attempted fraud situation has been thwarted by the auditor. Similarly, an imperfect record is one in which an attempted fraud was successfully perpetrated without detection by the auditor. Until such time as would-be perpetrators of fraud are required to report each attempt (perhaps to some governmental agency), there is no way to determine how perfectly or imperfectly auditors have performed. In the meantime, auditors will be presumed to have perfect records in the absence of evidence to the contrary. Undoubtedly, a number of management frauds have been successfully perpetrated without detection by auditors or others. It's only when the fraud comes to light that the possibility of audit failure becomes an issue. What this means is that some of the apparently perfect records may not be so perfect after all. "Failures" Widely Publicized; "Successes" Little Noted While alleged audit "failures" have received widespread publicity in recent years, little has been written about audit "successes.'' The reason is quite simple; unless the fraud or alleged fraud becomes a matter of public record the auditor can get no credit for its detection. Frauds or attempted frauds that have been detected by auditors during an ordinary examination (directed at the expression of an opinion on financial statements) rarely become part of the public record. This is because remedial action is taken prior to the time the audit report is issued. Since their reports are directed to the integrity of the financial statements and 87
Look at the record on auditor detection of management fraud
Ziegler, Donald R.
Nichols, Donald R., ed.
Stettler, Howard, ed.
Auditing Symposium V: Proceedings of the 1980 Touche Ross/University of Kansas Symposium on Auditing Problems, pp. 087-092
|Source||Published by: University of Kansas, School of Business|
|Rights||Contents have not been copyrighted|
|Format||PDF page image with corrected OCR scanned at 400 dpi|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi Library. Accounting Collection|