Meeting the Challenge through External Audit Essay

Meeting the Challenge through External Audit - Essay Example To prepare the research paper, data has been collected from various secondary sources such as, internet journals and academic websites. The basic premise of the research is to generate an understanding about fraud and role of external audit; how frauds have taken place in Canadian organizations, its impact and the limitations of external audit to face the problems of fraudulent activities. Table of Contents Research Paper Outline 2 Table of Contents 3 Introduction 4 The Duty of External Auditor 5 Fraud in Canadian Organizations 7 Challenges of External Audit 10 Conclusion 13 Introduction Fraud can be defined as a planned activity which is intended to betray other party. It results in sufferance of the victim through loss and accomplishment of any gain by the doer. Fraud is any unlawful act characterized by dishonesty, concealment or breach of faith. However, fraud does not mean any threat of bloodshed or physical force to deceive. It is committed by human beings and organizations to acquire money, assets or services and to evade fee or protect individual or corporate benefits. From the auditor’s viewpoint fraud is the misrepresentation of a company’s financial statement. The misrepresentation can happen because of fraudulent financial statement or embezzlement of asset. ... France or revelation of data (Thornton, â€Å"Managing Fraud Risk: The Audit Committee Perspective†) The Duty of External Auditor The duty of external auditor is to manage the fraud. According to statement on Auditing Standard No. 99 (SAS 99) the external auditor needs to: Collect requisite information to recognize the risks of material misrepresentation Recognize the threat of material misrepresentation Evaluate the risks of fraud React to the consequences of evaluation Examine the audit verification Share any proof of fraudulent activity to interested parties, and File the reflection of auditor regarding fraud (Thornton, â€Å"Managing Fraud Risk: The Audit Committee Perspective†). It is the duty of external auditor to identify the fraud and detect any kind of unlawful activity by any organization. In order to detect the risk of misrepresentation the external auditor can apply professional decision and consider the elements of risk which comprises of kinds of risk, im portance of risk, probability of the threat, and pervasiveness of the risk. The external auditor’s evaluation does not act like an assurance that no fraud exists in financial report. The audit committee must acquire rational assurance on behalf of the external auditors that organization has taken the requisite steps to secure the assets of the unit. The audit committee needs to verify by proper analysis about the auditor’s vigilance to the likelihood of fraud (Thornton, â€Å"Managing Fraud Risk: The Audit Committee Perspective†). According to Companies Act 2006, an organization is required to employ an auditor who makes a report for investors with a view on whether the financial statement provides accurate and real value of company’s financial performance. I