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Financial and Fraud Auditing Case Study


Differences between Financial and Fraud Auditing

Financial audit is the review of financial statements of the organization. A financial audit exercise is taken to be the process that seeks to verify financial statements of an entity. This is done with a view of expressing or making an audit judgment about a legal entity.

On the other hand, financial audit ensures that monetary information is recorded and reported in a just way. This encompasses all material aspects of the entity and seeks to give a just view as stipulated by financial frameworks. Thus, the main principle of providing financial statements is to develop confidence among the users of financial statements.

A financial audit examines all the procedures and ways that are used to transmit financial information in an organization. Besides, it requires one to gather all documents related to financial aspects of the firm. Some of the documents reviewed include; sales receipts, bank statements, and even invoices.

Assessment of proper recording is done so that all forms of errors can be detected. Furthermore, there is a check on compliance with the accounting policies and principles. The next step involves assessing the record-keeping policies to ensure that there is efficiency. Here, auditors determine the accessibility and retrieval of financial records.

The next step involves reviewing of the elements of the entity’s accounting system (Rezaee & Riley, 2009). Various accounts should be checked for compliance with the accounting system. For instance, it is a requirement that such systems should identify and correct errors.

Furthermore, the auditing firm looks at the internal control policies and the level of protection that firms provide against fraud. This would involve the procedures for accessing all financial documents and even the signatories. Besides, financial auditing involves making a comparison between internal cash holding and external records.

It also involves a comparison between external and internal records relating to incomes and expenses. Finally, the process involves making an analysis of internal and official tax returns relating to the company. Deductions and credits should also be reviewed to check for error and inflated expenses.

On the other hand, fraud auditing encompasses a careful review of all financial credentials with the aim of determining the differences. In fact, it is searching for aspects that do not mesh in financial statements of the firm. Moreover, a financial audit increases confidence in financial statements, whereas fraud audit addresses issues of fraud in an entity (Rezaee & Riley, 2009).

At other times, it is done to avert the occurrence of fraudulent activities. Unlike financial audit that has various steps and assessments, fraud audit encompasses a series of interviews. This is aimed at determining the depth of fraud in an entity. Thus, the auditing firm can interview people such as managers, employees and even business owners.

This is essential in obtaining information that will identify or show people or departments responsible for fraudulent actions. The next step involves the issuing of reports on the findings. This is aimed at providing information to stakeholders about the entity.

Obligations of CEOs

A CEO is entrusted with numerous responsibilities. Their actions should show good faith, accountability and even stewardship. They have an obligation to maximize returns to shareholders and employees. Accountability will ensure that mismanagement of funds is eliminated (Dyck & Neubert, 2010). Therefore, there will be no cases of losses to the company.

Besides, matters of stewardship and good faith will ensure that all actions taken serve the interest of employees and shareholders. CEOs have an obligation to make available all financial information to interested parties in the entity. Besides, the law requires CEOs to act in the best interest of the corporation. The information provided will show that there is sufficient monitoring of the actions of the people in managerial positions.

This will ensure that hoax is detected. This will facilitate the establishment of the appropriate actions taken to avert mismanagement of resources (Dyck & Neubert, 2010). This will ensure the interest of all stakeholders has been taken into consideration. Thus, conflicts will be averted, and the organization will efficiently achieve its goals and objectives.

Global instruments

There are global factors that contributed to failure and fraud in MF Global. First, there was the exposure to the European sovereign debt. This is believed to have triggered Moody’s Fitch and S&P to downgrade the credit. Besides, there had been an announcement of poor quarterly results during that period.

Thus, there was an escalation in the credit risk that saw the increase in the exchanges for aspects such as collateral (Rowland & Lawson, 2012). For instance, a large amount of capital was paid to support sovereign debts. It is because of doing the transactions above that the fraud was facilitated. What is more, computer systems would not handle the transactions that were being carried out.

Besides, due to the enormous transactions, employees of the organization made many errors. Most of the transactions were improperly recorded, and in some cases transactions were not recorded at all. This was the main reason behind the fraud in the organization. Besides, the auditors did not perform their work efficiently.

What is more, they did not identify that most of the financial records were omitted. Moreover, there were malpractices in the movement of cash (Rowland & Lawson, 2012). Further, the inefficiency of the auditing department resulted in the collapse of the organization.

Whistleblowing

To increase the chances of ‘whistleblowing’, internal auditors should be allowed to issue their reports to directors. There is also need to act on matters of fraud once an issue has been reported. This will encourage ‘whistleblowing’ in the organization because people will be sure that an action is being taken to ensure accountability.

Besides, the organizations should set rules and guidelines to give protection to people that report fraud in organizations. This will avert unfair treatments because of their ethical behavior. Moreover, adopting whistleblowing regulations that are meant to protect employees acting in good faith should be implemented in an organization.

Rewarding ethical behavior

It is my conviction that auditing firms and other business entities will eliminate fraud by rewarding staff that observe ethical behavior. This will foster actions of good faith in an organization. Besides, it will eliminate and avert any form of corruption. In fact, when people are rewarded for their ethical behavior, they feel appreciated, and no one can attempt to carry out deceitful activities.

For instance, people will be demoralized if they are not rewarded for ethical behavior. This will enhance unjust practices and hoax in the organization. People will steal and practice dishonesty in the organization. This will injure the reputation of the firm. Thus, it is appropriate to reward good deeds done by employees of an organization.

References

Dyck, B., & Neubert, M. J. (2010). Management: Current practices and new directions. Boston, MA: Houghton Mifflin.

Rezaee, Z., & Riley, R. (2009). Financial Statement Fraud: Prevention and Detection, Epub Edition. John Wiley & Sons Inc.

Rowland, C., & Lawson, M. (2012). The permanent portfolio: Harry Browne’s long-term investment strategy. Hoboken, N.J: Wiley.

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IvyPanda. (2019, December 27). Financial and Fraud Auditing. Retrieved from https://ivypanda.com/essays/financial-and-fraud-auditing/

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"Financial and Fraud Auditing." IvyPanda, 27 Dec. 2019, ivypanda.com/essays/financial-and-fraud-auditing/.

1. IvyPanda. "Financial and Fraud Auditing." December 27, 2019. https://ivypanda.com/essays/financial-and-fraud-auditing/.


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IvyPanda. "Financial and Fraud Auditing." December 27, 2019. https://ivypanda.com/essays/financial-and-fraud-auditing/.

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IvyPanda. 2019. "Financial and Fraud Auditing." December 27, 2019. https://ivypanda.com/essays/financial-and-fraud-auditing/.

References

IvyPanda. (2019) 'Financial and Fraud Auditing'. 27 December.

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