If you could answer this auditing question that will be helpful. What about audi
ID: 2738498 • Letter: I
Question
If you could answer this auditing question that will be helpful. What about auditors blowing the whistle? Sometime in their career, sooner or later, the auditor will come upon something that seems a little 'funny'. It is often brought to their attention by a concerned employee of the client. The question, what should you do when an employee brings something to your attention? Let's say it is a construction company and the employee reports that s/he is concerned that the V.P. of operations may be getting kickbacks b/c the V.P. has narrowed the approved vendor list for a key commodity to two vendors and the V.P.'s standard of living has markedly improved over the last two years. Express your ideas briefly on it.
Explanation / Answer
THE AUDITOR AS WHISTE BLOWER
Unless audit staff handles audit correctly they may can identify the triggers of whistle blower mechanism. if they tell the audit partner. But if the revelation is not shared with the audit partner then the quality of the audit may be in jeopardy. Before looking closer at the how you can prepare your auditors and audit team members for a whistleblower’s revelation, it is useful to look at the benefits of protecting whistleblowers. Corporate cultures of silence, which allow wrong doing to go undetected, are seen as contributing to the recent round of local and international corporate failures. A regime protecting whistleblowers is seen as part of the answer because it encourages reporting of contraventions by employees.
The auditor should be friendly to attract the whistle blower triggers.
Whistleblower legislation is becoming increasingly common. It has traditionally been more common in the public sector than the private sector. But in the late 1990s it started to become part of the international regulatory response to corporate fraud, particularly covering up such fraud in the financial reports. In the USA the Sarbanes-Oxley Act gives whistleblower protection for corporate employees and mandates companies establish procedures to permit anonymous reporting by employees. It places the obligation to establish these on the audit committee.
In the United Kingdom, the Combined Code of Corporate Governance establishes whistle blower protections and recommends audit committees have whistleblower arrangements for financial reporting irregularities.
In the audit of a concern the auditors responsibility is to express opinion on the financial statements that whether they are free from material misstatement which is caused by error or fraud. The primary responsibility to detect the fraud is of the management and the auditor is not the sole responsible person to detect the fraud but when he comes through the fraud he should consider the effect of fraud on the financial statements and should report to the appropriate levels whether management or Those who charged with governance.
There three sources of fraud,
1. Incentive or pressure - Management or employees are under an incentive or pressure, which gives the motivation to commit such a fraud.
2.Opportunity - Due to lack of presence controls or non presence of controls gives the persons an opportunity to commit an fraud.
3.Rationalization / Attitude - Due to weak personal code of ethics the attitude of persons could be that to commit such an fraud.
The auditor should maintain the professional skepticism that means the auditor needs to set apart the past relationships with the client and should assess the client financial statements independently.
The auditor should take decisions based on the audit evidences which can be external or internal, past experiences and the integrity of management.
So mere the an employee is reporting that the manager in operations is earning much for the past 2 years it can not be assumed that the manager is involved in the fraud.
There can be many reasons for the increased financial status of the manager for example incentives from the company, other incomes, stock market gains etc..
There can be reasons for taking only two suppliers into consideration may be there can be better prices are being offered by the suppliers or there may be lack of suppliers in the market over a period of time etc…
The auditor shall obtain audit evidence regarding there issues and shall analyze that actually fraud existed or not. There may be a chance that the reporting employee may have grudge on the manager or the information is falsified.
It is the responsibility of auditor to look into such matters