Today, I want to discuss the topic, first about the external auditor’s role, and then internal auditing role.
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Francine McKenna is a lady you should follow[1] (@retheauditors) if you are interested in the external audit profession. She never holds back on her criticisms of the accounting profession, especially the so-called “Big Four”.
Her latest online newsletter is The Dig. That is where she recently wrote a provocative piece, Busting the myth about auditors and fraud.
She asserts that there is a common myth that “The [external] audit is not designed to detect fraud”.
It is very easy to get confused with this topic, and the ‘myth’ is both true and false.
- True: the external auditors are not required to detect every fraud.
- False: they are required to perform procedures that will provide a reasonable level of assurance that the financial statements filed with the SEC are free of material misstatements due to fraud.
Francine provides a link to a PCAOB[2] paper from 2012, Consideration of outreach and research regarding the auditor’s approach to detecting fraud. The paper says:
Under PCAOB standards, the auditor is required to plan and perform the audit of the financial statements to obtain reasonable assurance, which is a high level of assurance, about whether the financial statements are…
