There are so many reasons why auditor may fail to detect fraud and possibly material misstatements due

to fraud. Some of the reasons are discussed below:

Improper planning including not revising audit plan that includes erroneous initial assessment of risk of material misstatement:

Risks of material misstatement at the financial statement level relate pervasively to the financial statements as a whole and potentially affect many assertions. Risks of material misstatement at the financial statement level may be especially relevant to the auditor's consideration of the risk of material misstatement due to fraud. For example, an ineffective control environment, a lack of sufficient capital to continue operations, and declining conditions affecting the company's industry might create pressures or opportunities for management to manipulate the financial statements, leading to higher risk of material misstatement. There is an inverse relationship between and detection risk which is the risk that auditors will not detect a misstatement. If risks of material misstatement increases, this means that the auditor will do more substantive testing and this leads to a decrease of the detection risk. If risks of material misstatement decreases, this means the auditor will not do as much testing and the detection risk will increase because limited testing will increase the chances of the auditor missing something.

Lack of skill and experience:

There has been much debate about the auditor's role in fraud detection. Since auditors those with lack of sufficient skill and experience can possibly fail to detect fraud, it is argued they should look to other disciplines for useful knowledge.

Inappropriate supervision of junior team members:

Auditors have to keep an eye on the every activity of their employees or junior team members .Otherwise in the absences of auditors he/she can do anything which will surely cause loss to their business. Improper allocation of work among team members: If the work is allocate to team members on a fair basis then the chances failure increases and its also create problem for auditors to find fraud. You should take account of their skills, knowledge, understanding, experience and workloads as well.

Inability to gather sufficient appropriate audit evidence:

The inability of the auditor to gather sufficient appropriate audit evidence is technically termed as limitation on scope of auditors work or limitation on the scope of audit i.e. auditor has been restricted to perform his effectively and in the absence of evidence auditor is not able to reach conclusions and without relevant conclusions auditor cannot form audit opinion

Inappropriate designs audit program sample selection target assertions:

The audit procedures that are necessary to address the assessed fraud risks depend upon the types of risks and the relevant assertions that might be affected. If the auditor doesnot identify the deficiencies in controls that are intended to address assessed fraud risks, then the risk of failure rises.

Wrong interpretation of results: Auditors may fail to interpret true results which will create a audit risk.

Over reliance on management information/representations/internal control system/not corroborating evidence already obtained:

Auditors difficulties increases with over-reliance on management assertions. That is, auditors sometimes fail to understand managements process fo r generating the estimate, fail to adequately test the underlying data and assumptions, and fail to notice inconsistencies of the estimate with other internal data or external conditions.

Incomplete documentation:

Documentation used to support approvals was not readily available and a clear process description and set of procedures/guidelines which describe the necessary approval activities that should be performed by staff were incomplete or not clear, without them auditors cannot investigate the fraud

Lack of quality assurance department in audit firms

They failed to follow the basic procedures of the auditing profession and exercise an appropriate level of professional skepticism. Over reliance on client representations Failure to maintain an appropriate level of professional skepticism

Failure to recognize that an observed condition may indicate a material fraud Lack of experience Personal relationships with clients Failure to brainstorm potential fraud schemes Auditors should be very careful about initial impressions