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What is internal auditing’s role in preventing, detecting and investigating fraud?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 pranesh asked almost 3 years ago

What is internal auditing’s role in preventing, detecting and investigating fraud?

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5 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered over 2 years ago

Prevention Establishing a culture of integrity is a critical component of fraud control. Executive management must set the tone at the top and model the highest level of integrity. The internal auditors may advise management on methods to ensure integrity and may become involved in communicating or interpreting those methods. They also may help develop training related to integrity policies and fraud. As a part of their assurance activities, internal auditors watch for potential fraud risks, assess the adequacy of related controls, and make recommendations for improvement. They also can help benchmark statistics related to the probability of occurrence and consequences of fraud. Detection Because the internal auditors are exposed to key processes throughout the organization and have open lines of communication with the executive board and staff, they are able to play an important role in fraud detection. 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 detection of fraud. When developing their annual audit plan, the internal auditors consider the organization's assessment of fraud risk, and periodically might make assessments of management's fraud detection capabilities. They design tests that use audit techniques like data mining to ensure the controls in place are effective.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 lochan answered almost 3 years ago

“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. Although it is management's responsibility to design internal controls to prevent, detect, and mitigate fraud, the internal auditors are the appropriate resource for assessing the effectiveness of what management has implemented. Therefore, depending on directives from management, the board, audit committee, or other governing body, the internal auditors might play a variety of consulting, assurance, collaborative, advisory, oversight, and investigative roles in an organization's fraud management process.” thanks

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered almost 3 years ago

Dear Friend, Internal auditors support management's efforts to establish a culture thatembraces 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. Although it is management's responsibility to design internal controls to prevent, detect, and mitigate fraud, the internal auditors are the appropriate resource for assessing the effectiveness of what management has implemented. Therefore, depending on directives from management, the board, audit committee, or other governing body, the internal auditors might play a variety of consulting, assurance, collaborative, advisory, oversight, and investigative roles in an organization's fraud management process. Competent professional internal auditors are highly proficient in techniques used to evaluate internal controls. That proficiency, coupled with their understanding of the indicators of fraud, enables them to assess an organization's fraud risks and advise management of the necessary steps to take when indicators are present. **Prevention** Establishing a culture of integrity is a critical component of fraud control. Executive management must set the tone at the top and model the highest level of integrity. The internal auditors may advise management on methods to ensure integrity and may become involved in communicating or interpreting those methods. They also may help develop training related to integrity policies and fraud. As a part of their assurance activities, internal auditors watch for potential fraud risks, assess the adequacy of related controls, and make recommendations for improvement. They also can help benchmark statistics related to the probability of occurrence and consequences of fraud. **Detection** Because the internal auditors are exposed to key processes throughout the organization and have open lines of communication with the executive board and staff, they are able to play an important role in fraud detection. 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 detection of fraud. When developing their annual audit plan, the internal auditors consider the organization's assessment of fraud risk, and periodically might make assessments of management's fraud detection capabilities. They design tests that use audit techniques like data mining to ensure the controls in place are effective. **Investigation** Internal audit skills relate to gathering evidence, analysing the breakdown in controls that could enable a fraud, and making recommendations for improvement. And reporting directly to the board or governing body provides the internal auditors with a level of independence and objectivity necessary for them to undertake investigations of a sensitive nature. Although the internal auditors may either have a direct role in investigating fraud incidents, or act as a resource to those responsible, they generally are not expected to have the expertise of those whose primary responsibility is detecting and investigating fraud. When the internal auditors have the primary responsibility for fraud they must have the key competencies for this work — typically obtained through specialized training and related experiences. They also may be certified as fraud or forensicinvestigators.

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Open uri20170510 32134 1c996lj?1494421732 Anil answered almost 3 years ago

“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. Although it is management's responsibility to design internal controls to prevent, detect, and mitigate fraud, the internal auditors are the appropriate resource for assessing the effectiveness of what management has implemented. Therefore, depending on directives from management, the board, audit committee, or other governing body, the internal auditors might play a variety of consulting, assurance, collaborative, advisory, oversight, and investigative roles in an organization's fraud management process.” The ever increasing regulations and expansion of organisations across the globe into new markets exposed the organisations to greater regulatory and compliance risks. Regulators expect thorough due diligence, oversight The changing role of internal audit 3 and background checks to be performed on partners, vendors, suppliers and others. As fraud has a number of negative impacts on organisations – financial and reputational – it is important for the organisations to have a strong fraud prevention programme. As organisations work towards reducing the losses due to fraud, their anti-fraud programmes are increasingly looking towards the internal audit function for support in light of the fact that over time as internal auditors review systems in the organisation, they develop an overall knowledge of the organisation’s processes, risks, control systems and personnel which can contribute to an effective fraud risk management. The IIA provides mandatory guidance for internal auditors in its International Professionals Practices Framework (IPPF). Internal auditors are expected to have sufficient knowledge to evaluate the risk of fraud in their organisations, and are required to report to the board any fraud risks found during their investigations. IPPF also expects the internal audit activity to evaluate the potential for the occurrence of fraud and how the organisation manages its fraud risk. The expectation is that internal auditing should provide objective assurance to the board and management that fraud controls are sufficient for identified fraud risks and ensure that the controls are functioning effectively. Internal auditors may review the comprehensiveness and adequacy of the risks identified by management — especially with regard to management override risks.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Aarti Vadnerkar answered almost 3 years ago

Responsibility for preventing and detecting fraud rest with management entities. Although the auditor is not and cannot be held responsible for preventing fraud and errors, in your work, he can have a positive role in preventing fraud and errors by deterring their occurrence. The auditor should plan and perform the audit with an attitude of professional skepticism, recognizing that condition or events may be found that indicate that fraud or error may exist. Based on the audit risk assessment, auditor should develop programs to audit procedures by which to obtain reasonable assurance that the financial statements in their entirety, all significant errors and fraud have been identified. It is expected that the auditor to implement procedures that will lead to the discovery of errors or fraud without significant impact on the financial statements can not be held responsible for undetected such irregularities. The auditor should communicate with the management of his client. He should ask the management information concerning any significant fraud or error has been detected in order to detect key problems that could lead to certain activities, the implementation of audit procedures more than usual However the auditor faces the risk inevitable that some significant errors to be detected, even if the audit is planned and done properly

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