Role of Auditors

The independent auditors’ role is to provide an independent opinion as to whether the company

has prepared its financial statements, including results of its operations and cash flows, in

accordance with Australian accounting and auditing standards. This independent opinion is of

significant importance as it enhances the credibility of the financial statements produced by the

management. In order to establish the independent opinion is to: first, the auditor must have a

state of mind whereby they provide their opinion without compromising their judgment while

acting with integrity, objectivity and professional skepticism. Lastly, the auditors must possess

independence in appearance wherein there is the avoidance of circumstances that would cause

a reasonable and informed third party, who has knowledge of all relevant information, including

safeguards applied, to reasonably conclude that the integrity, objectivity, or professional

skepticism of a firm or member of the attest engagement team is compromised.

On the other hand, internal auditors support management's efforts to establish a culture that

embraces ethics, honesty, and integrity. They assist management with the evaluation of internal

controls used to detect or mitigate fraud, evaluate the organization's assessment of fraud risk,

and are involved in any fraud investigations. The management's responsibility is to design

internal controls to prevent, detect, and mitigate fraud while the internal auditors are the

appropriate resource for assessing the effectiveness of what management has implemented.

For the prevention, internal auditors watch for potential fraud risks, assess the adequacy of

related controls, and make recommendations for improvement. For the detection, internal

auditors are able to play an important role in fraud detection because they are exposes to key

processes throughout the organization and have open lines of communication with the

executive board and staff. Technically, auditors should issue a qualified report if they notice

anything amiss. In many organizations, the Chief Audit Executive (CAE) is responsible for

responding to issues raised on the ethics hotline or through another process that may lead to

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detection of fraud. Further, some organizations include fraud awareness and response

mechanisms within the internal audit activity, and some internal auditors may investigate fraud.

Investigation is not typically an internal audit task; therefore, internal auditors should exercise

due professional care by considering the extent of work needed to achieve the engagement’s

objectives and the related complexity, materiality, or significance. They should decide if they are

best placed to undertake the investigation or whether to engage internal legal counsel, human

resources, qualified or certified fraud examiners, digital forensics, or outside legal and

investigative expertise.

To sum up, if the auditors do not spot the creative accounting and the fraud, then there are

grave risks to their reputation. They may well be sued by investors in negligence cases. At the

very least, the auditors may be taken to court and sued if an accounting scandal leads to a

company’s collapse.

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Bibliography

Association of International Certified Professional Accountants, Inc. (2008). AICPA Plain

English Guide to Independence. New York City.

Jones, M. J. (2011). Creative Accounting, Fraud and International Accounting Standards.

London: John Wiley & Sons Ltd.

Mirshekary, S., Yaftian, A., & Cross, D. (2005). Journal of Financial Services Marketing.
Australian Corporate Collapse: The Case of HIH Insurance , 250-251.

The Institute of Internal Auditors, Inc. (2019). Assurance Over Fraud Controls Fundamental to
Success. Fraud and Internal Audit , 2-3.