Role of Auditors in Setting Standards and Detecting Fraud in

School: University of California, Irvine - Course: ACCOUNTING 124A - Subject: Accounting

Quote for DQ 1: "The PCAOB has proposed new standards for the auditor's report on audited financial statements of publicly held companies. Currently it is not known if the AICPA ASB will follow suite with similar changes for reports on privately held companies." 1.What role has the AICPA's Auditing Standards Board (ASB) and its predecessors played in setting Generally Accepted Auditing Standards (GAAS) over the past 75 years? How did that role change in 2003? 2.What role does the PCAOB play in setting GAAS? 3.Using the links presented in this week's lecture for theAICPA - Clarified Statements on Auditing Standardsand for the PCAOB's "Auditing Standards," identify for each of the following questions the AICPA's SAS and AU-C section reference and the corresponding PCAOB AS reference. For example, for item a. below the AICPA reference is SAS 122 AU-C sec. 200 and the PCAOB reference is AS 1001. Go to each of the questions, including item a., find the applicable sections, and discuss what is covered in each to include the similarities or differences between the SAS and the AS. a. Responsibilities and functions of the independent auditor also referred to as overall objectives of the independent auditor b. Audit evidence c. Audit documentation d. Consideration of an entities ability to continue as a going concern e. Auditor's report on the audited financial statements 4.Discuss the recent developments on the auditor's report on audited financial statements. 5.Discuss the enforcement actions that may be taken for the violation of: a. AICPA's SAS's b. PCAOB's AS's Quote for DQ 2:

"Dr. Briloff believed the external auditors should have responsibility for detecting fraud and for financial statement presentation." and discuss whether you agree with Dr. Briloff or not.) In Chapter 3 we identified two major types of fraud: Occupational Fraud discussed starting on page 130 and Financial Statement Fraud discussed starting on page 135. While the Fraud Triangle and other questions below apply equally to both Occupational Fraud and Financial Statement Fraud; this DQ refers only to Financial Statement Fraud. 1.Briefly describe in your own words Financial Statement Fraud. Financial Statement Fraud is when an accountant or audit exaggerates or inflates parts of a financial statement, an example of this is netting. Netting is when gross profits are overstated and operating expenses are also understating, this causes an increase in net income. Companies do this in order to try to hit certain financial marks or requirements. 2.What is the auditors' role in detecting and reporting Financial Statement Fraud? 3.Discuss the responsibility each of management and the Board of Directors for detecting and reporting Financial Statement Fraud. 4.Describe in your own words what the Fraud Triangle tells us about fraud. 5.How can the Fraud Triangle be used in helping to detectFinancial Statement Fraud? 6.How can the Fraud Triangle be used in helping to preventFinancial Statement Fraud?