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Auditors vs Fraud Examiners

The accounting profession is responsible for the accuracy in presenting financial statements and ensuring that the statements are free of any misrepresentation. To ensure accuracy is present, each year these numbers are reviewed and analyzed by an external auditor.

An auditor also assesses the internal controls of an organization and its management and evaluates how those controls are implemented to protect the assets of the business. These auditors are usually licensed professionals familiar with the industry who are hired from an outside accounting firm. The fraud examiner, on the other hand, is called to determine whether fraud occurred and who is responsible for the fraud.

 

Fraud examiners and auditors both work with financial data, but they have different primary objectives. An audit aims to express an opinion on financial statements. While on the other hand, the fraud examination’s goal is to determine whether fraud has/is occurring and to determine who is responsible.

Some of the duties that fraud examiners and auditors conduct are similar. These include gathering financial data and reviewing records. They may also both write reports and notify their clients or employer of their opinion. But still, the two have different tasks.

Both an auditor and fraud examiner share some common attributes, but their roles are different, and it is important to know and understand those differences.

Some key differences separating an auditor and a fraud examiner are:

  • The auditor reviews financial data for accuracy and materiality, while the fraud examiner has a different focus: to discover the fraud and its extent and gather information for the next move.
  • An auditor is not required to look for fraudulent activities or to detect fraud within the accounting records, but if there is an irregularity, they do need to report it to management.
  • Fraud examiners might spend more time interacting with others, since they may need to interview potential witnesses.
  • Audit examination is conducted annually, while fraud examination performed spontaneously.

 

While it may look like auditors do not have fraud detection responsibility, it is indisputable that an auditor of financial statements has a fraud detection burden. Auditing Standard (AS) 1001, Responsibilities and Functions of the Independent Auditor, clearly states that:

“the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Because of the nature of audit evidence and the characteristics of fraud, the auditor is able to obtain reasonable, but not absolute, assurance that material misstatements are detected.” 

A reasonable reading of this description is that the auditor is required to obtain a reasonable assurance for material misstatement in a financial statement when detected.

In conclusion, auditors are not responsible for the detection of all fraud, but they still responsible for detecting fraud, which materially misstates financial statements. Fraud examiners have a responsibility to detect fraud within their goals.

 

References:

  1. https://www.cpajournal.com/2018/03/05/audit-vs-fraud-examination/
  2. https://www.purdueglobal.edu/blog/business/auditors-vs-fraud/
  3. https://study.com/articles/difference_between_fraud_examiner_auditor.html
  4. https://www.acfe.com/uploadedFiles/Shared_Content/Products/Books_and_Manuals/INTRO%202012%20-%20final.pdf