MAC 005 Audit and Assurance For Detection of Frauds

Questions:

a.Identify the concepts/principles associated with the questions/scenarios
b.Define the concepts/principles associated with the questions/scenarios

Answer:

Role of External Auditor in Detection of Frauds

The primary role of an auditor is to analyze the financial statement of a company with a view to make an opinion whether the financial statements of the company are showing true and fair view or not. The opinion of the auditor is very important in order to justify whether the financial statements of the company are fairly represented or not. In addition to this, for most of the companies, auditing of a financial statements is mandatory for ensuring that all the financial data is fairly reported and the financial position of the business is effectively shown (Petra?cu and Tieanu 2014). Most of the companies wrongly believe that the primary responsibility of the auditor is to detect any frauds which make have taken place but it is not the case.

The primary focus of an auditor is to investigate the financial reports of the company and form an opinion on the same on the basis of which an audit report is prepared. The report states the findings of the auditor during the course of the audit and also states his opinion whether the financial statements are showing true and fair view or not (Sharma and Panigrahi 2013). The auditor needs to ensure that all the legal requirements, accounting principles and relevant standards are adhered to while preparing the final accountings of the business. However, if during the course of audit, the auditor discovers a situation where fraud might have taken place than the auditor needs to inform the management of the company of such a situation (Leung et al. 2014). The auditor cannot overlook such an incident but this does not mean that the management should expect detection of frauds from the auditor as their primary responsibility. 

Assertion for Student fees Revenue

As per the case study which is shown in the assessment shows that UBWS is a privately-owned institute which operates in Sydney and the institute provide educational services for which it charges a fee of $ 20,000 which is to be paid at the beginning of each quarter. The chief financial officer (CFO) needs to ensure the total collection of revenues which comes from the fees of the students and ensure that the amount which is collected are appropriate as per the expectation of the management. The institute needs to ensure that the amount which is collected from each student during each quarter must be effectively recorded with proper receipts.

Internal Control

The internal control of the institute also plays a vital role in the effective management of the of the institute. The management needs to ensure that effective internal control is established so that the revenues which are collected can be recorded effectively and the same can be banked for management of the funds (Skaife, Veenman and Wangerin 2013). An effective internal control in a business ensures that no incidence of frauds takes place and proper control over the funds and operations are maintained by the management.  

Reference

Leung, P., Coram, P., Cooper, B.J. and Richardson, P., 2014. Modern Auditing and Assurance Services 6e. Wiley.

Petra?cu, D. and Tieanu, A., 2014. The role of internal audit in fraud prevention and detection. Procedia Economics and Finance, 16, pp.489-497.

Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.

Skaife, H.A., Veenman, D. and Wangerin, D., 2013. Internal control over financial reporting and managerial rent extraction: Evidence from the profitability of insider trading. Journal of Accounting and Economics, 55(1), pp.91-110.