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The document outlines the responsibilities of directors and external auditors in detecting and preventing fraud within a company. Directors must promote ethical leadership, safeguard assets, oversee fraud prevention systems, and ensure reliable financial reporting. External auditors are tasked with examining financial statements, detecting material misstatements, reporting suspicious findings, and issuing qualified opinions when necessary.

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6 views

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The document outlines the responsibilities of directors and external auditors in detecting and preventing fraud within a company. Directors must promote ethical leadership, safeguard assets, oversee fraud prevention systems, and ensure reliable financial reporting. External auditors are tasked with examining financial statements, detecting material misstatements, reporting suspicious findings, and issuing qualified opinions when necessary.

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Bunthea
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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VI | Responsibility for Detecting and Preventing Fraud

6.1 | Directors (Board Members / Senior Executives)

 Who They Are: The highest level of leadership responsible for steering the company.

 Responsibilities ('What They Must Do'):

1. Promote Honesty (Set the Tone at the Top): Demonstrate ethical leadership and
establish a clear expectation of integrity throughout the organisation, creating an
ethical culture.

2. Protect Company Property (Safeguard Assets): Ensure that adequate internal


controls (systems, rules, processes) are implemented and maintained to protect all
company assets from loss, damage, or theft.

3. Oversee Fraud Prevention and Detection Systems: Ensure specific measures are
in place to prevent fraud (like effective Segregation of Duties) and detect it promptly
if it occurs (like ensuring regular internal/external audits).

4. Ensure Reliable Financial Information: Establish policies and procedures to


guarantee that the company's financial reporting process is robust and produces
truthful, accurate financial statements that reflect actual performance and position.

6.2 | External Auditors

 Who They Are: Independent professionals or firms engaged by the company to provide an
objective assessment of its financial statements.

 Main Job: To examine the company's formal financial reports and provide assurance to
stakeholders.

 Responsibilities ('What They Must Do'):

1. Express an Opinion on Financial Statements: Examine the Statement of Financial


Position, Statement of Profit or Loss, etc., and issue a formal opinion on whether
they are presented fairly and accurately in accordance with applicable accounting
standards.

2. Design Procedures to Detect Material Misstatements: Plan and perform audit


tests specifically aimed at identifying significant errors or fraud that could mislead
users of the financial statements. (Note: They provide reasonable, not absolute,
assurance).

3. Report Suspicious Findings: Communicate any findings indicative of potential


fraud or material error to the appropriate level of management and those charged
with governance (e.g., the board or audit committee). They may have further
reporting obligations to external authorities under certain legal/ethical circumstances
(e.g., if management is involved, or if required by law).

4. Issue a Qualified Opinion When Necessary: If material misstatements are


identified and management refuses to correct them, or if the auditor cannot obtain
sufficient evidence, they must modify their audit report (issue a qualified opinion) to
warn users about the unresolved issues or scope limitations, indicating the statements
may not be fully reliable.

FAU, FFM, FBT Kim Mara | 11


.
Q14: Which word or phrase correctly completes this statement?

In a limited company, or plc, it is the ultimate responsibility of ▢▼ to take reasonable


steps to prevent and detect fraud.

Pull down list


• The audit committee
• The board of directors
• The external auditor

FAU, FFM, FBT Kim Mara | 12


.

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