In AAS 4 (Auditor’s responsibility to consider fraud and errors),
we read the responsibility of an auditor when there is a fraud or error in the
financial statements. It is the duty of auditor to deduct and stop the fraud
and errors. He is not the employee of
company but he is the trustee of all interested parities of company. His aim is
to protect company’s goodwill and assets. Save the money of interested parties.
When auditor sees that there are manipulation , falsification and alteration of
accounting records for cheating financial statements users, auditor should prevent
it by informing legal authorities.
If he
audits with full of care and his audit knowledge but still accounts are not
free from material misstatements, at that time, auditor is not responsible for
this. Auditor provides the opinion on financial statements upto the reasonable
level of assurance. He does not give the guarantee that there is a not material
misstatement due to fraud or errors.
For doing
his responsibility with better way, he will take some of following steps.
- Discussion with Management
Officers
Auditor
will discuss with management when he finds any intentional fraud in accounting
records. All are not bad. Auditor should become positive. He has to faith
management officers. Only discussion will help to find the bad fish in the
company. Discussion will be helpful for finding real reason of misstatements.
- Inquiries of Management
Auditor
should become rational. He should not faith by closing his eyes. He should do
some inquiries for knowing who did fraud. Which of all employees had done this.
By inquiries, he should know whether company’s mgt. knows the accounting fraud
or not.
- Communication
When
auditor finds misstatements due to fraud or errors, he should inform following
a) Management of company
b) Person with charged
c) Regulatory authorities
Auditor
should inform regulatory authorities like RBI, CBI or SEBI only when it is
compulsory as per law. For example, if any non-banking financial company has done fraud through misstatement of accounting records, its information must be sent to RBI by auditor.
Related : AAS 3
Related : AAS 3
