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1 June 2018 - CPA -Intheblack - Should auditors be held liable if they miss fraud?

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JWheldon
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Joined: Wed May 24, 2017 6:43 pm

1 June 2018 - CPA -Intheblack - Should auditors be held liable if they miss fraud?

Post by JWheldon » Wed Jun 06, 2018 11:21 pm

Found this article below with regards to audits from the Intheblack online. What a sad response from CPA Australia, especially with regards to the issues now being raised about the function of audits, especially in the not for profit sector and also large listed organisations. The external auditors term of engagement are outdated and in need of major change. Lack of accountability by the auditor, lack of scope in the audit function and use of the standard audit report. The audit function as "Our objectives are to obtain reasonable assurance about whether the Schedule as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion". The members of CPA Australia, have shown issues about the audit function, and issues about the items in the financial report which the auditor didn't not even check, maybe because its not part of the terms of engagement. The current audit function does not enable the members of CPA Australia or other organisations, to be provided with sufficient information to be able to hold the management or board of CPA Australia to account.

"Claire Grayston CPA -Policy adviser – audit and assurance, CPA Australia
The governing body and management of the entity hold primary responsibility for prevention and detection of fraud, so blame cannot be placed automatically or solely on the auditor. The auditor should be liable only if inadequacies in their audit resulted in failure to detect the fraud."

"An auditor’s role is to form an opinion about whether the financial report as a whole is free from material misstatement, whether due to fraud or error. The auditing standards provide the legal requirements for the conduct of an audit, which is intended to provide reasonable but not absolute assurance that the financial report contains no fraud or errors. It is not a guarantee. The magnitude of any fraud, whether there was collusion and the sophistication of any concealment, will have a significant impact on whether the audit procedures are likely to identify that fraud.

"The auditor should be liable only if inaduacies in their audit resulted in failure to detect the fraud." Claire Grayston CPA

Due to these factors, the auditor is less likely to detect a fraud than an error, but the auditor still needs to be sceptical and identify and address the risks of fraud."

The audit function, can not be held to account, as the process used by the auditor and their team can not be checked, for example, by the member of an organisation.

The auditors communicate to the directors issues relating to the audit findings relating to significant deficiencies in internal control. Isn't that what the internal auditors and audit process is supposed to be providing?
"We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit."




Have attached below the standard industry audit opinion from Mark Stretton from the CPA Australia Audit for members to read.

Have also attached the CPA Australia, intheblack article with regards to the position "Should auditors be held liable if they miss fraud"

One can argue for example, the HSU federal scandal, which the auditors missed, the RSL NSW issues, which the auditors clearly missed.

Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
Tel: +61 3 9671 7000
Fax: +61 3 9671 7001
www.deloitte.com.au
Independent Auditor’s Report to the Directors of
CPA Australia Ltd
Opinion
We have audited the Schedule of Directors’ Remuneration of CPA Australia Ltd and its subsidiaries
(collectively “CPA Australia”) for the year ended 31 December 2017 (the “Schedule”). The Schedule
has been prepared by management using the basis of preparation as described in the Schedule (the
“Basis of Preparation").
In our opinion, the Schedule presents fairly, in all material respects, the remuneration paid to each
director for the year ended 31 December 2017 in accordance with the Basis of Preparation.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Schedule
section of our report. We are independent of CPA Australia in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the “Code”) that are relevant to our audit in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Information other than the Schedule
The Directors are responsible for the preparation of the preamble to the Schedule. Our opinion on
the Schedule does not cover the preamble. Accordingly, we do not express any form of assurance
conclusion on the preamble.
Management’s Responsibility for the Schedule
Management is responsible for the preparation and fair presentation of the Schedule as if CPA
Australia had received a direction to disclose the information prescribed under section 202B of the
Corporations Act 2001 and the Basis of Preparation, and for such internal control as management
determines is necessary to enable the preparation of a Schedule that is free from material
misstatement, whether due to fraud or error.
Auditor’s Responsibility for the Audit of the Schedule
Our objectives are to obtain reasonable assurance about whether the Schedule as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this Schedule.

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
•Identify and assess the risks of material misstatement of the Schedule, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
•Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of CPA Australia’s internal control.
•Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made in the Schedule by management.
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also communicate with the directors on all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related safeguards
DELOITTE TOUCHE TOHMATSU
Mark Stretton
Partner
Chartered Accountants
Melbourne, 16 March 2018



https://www.intheblack.com/articles/201 ... ting-fraud

Should auditors be held liable if they miss fraud?

https://www.intheblack.com/articles/201 ... ting-fraud

Intheblack article dated 1 June 2018
Should detecting fraud or other major infractions be part of an auditor's professional duty of care or is it a step too far?

By Nina Hendy
Roger Darvall-Stevens

Director and national head of Fraud & Forensic Services, Australia, RSM

Roger Darvall-Stevens

Roger Darvall-Stevens
No, in short. This is a question that is often asked and an area that is often misunderstood. A leading global fraud study from the Association of Certified Fraud Examiners (ACFE) reveals that as a means of detecting fraud, external audit only features in 3 per cent of detected fraud cases.

The top three methods by which fraud is detected are tip-off, internal audit, and management review. External audit is not designed to detect fraud.

One component of the external audit process is to assess the risk of material fraud and be aware of the potential for it, then take that into account when designing, planning and undertaking an external audit. Testing for fraud risk usually means a multi-million dollar threshold, not transactional, smaller dollar-sized immaterial frauds or multiple fraud methods by a single fraudster.

"... an auditor is a watchdog, not a bloodhound." Roger Darvall-Stevens

Companies are more prudently focusing on bolstering their whistleblower or tip-off avenues, such as the internal audit function, if they have one, and ensuring management review of transactions is effective. This complements professional, sceptical management, and external auditors.

In short, an auditor is a watchdog, not a bloodhound.
James Madden CPA

Director, Madden Partners

James Madden CPA

James Madden CPA
What would holding auditors liable for failing to detect fraud actually achieve? [More] frauds would be detected, but it would most definitely result in a much more disruptive and far more expensive audit process, and potentially turn people off entering an already dwindling profession.

Because time available to spend on an audit is capped and testing cannot go on indefinitely, the auditor employs a risk- based approach when conducting audit testing, which means not everything is looked at. Auditors use their professional judgement, experience and the accounting standards to focus the audit and provide an opinion based on what they have seen. This gives the client some reassurance, without bankrupting them.

Due to its inherently illegal nature, fraud is almost always hidden or disguised, making it very difficult to detect. Even if the auditor was to double or triple the sample size, it would not guarantee a transaction indicating wrongdoing would be selected. If the auditor looked at every transaction comprising the financial statements, the cost would likely far outweigh the dollar value of the fraud committed.

"If fraud is discovered after the audit, the auditor doesn't just shrug and walk away." James Madden

If fraud is discovered after the audit, the auditor doesn’t just shrug and walk away. Registered company auditors (RCAs) are answerable to the Australian Securities and Investments Commission (ASIC), which has the power to strip an auditor of registration.

Put bluntly, the threat of losing your ability to generate income by using your skill set is a much darker prospect than having to make a claim against indemnity insurance.

Professional Development: Applying the auditing standards. This course provides comprehensive coverage of the auditing standards and how to communicate, document and apply the requirements, including key audit matters, enhanced auditor reporting and review engagements.
Claire Grayston CPA

Policy adviser – audit and assurance, CPA Australia

Claire Grayston CPA

Claire Grayston CPA
The governing body and management of the entity hold primary responsibility for prevention and detection of fraud, so blame cannot be placed automatically or solely on the auditor. The auditor should be liable only if inadequacies in their audit resulted in failure to detect the fraud.

If fraud was perpetrated during a period covered by the auditor’s report on the entity’s financial statements, but not detected before the report was signed off, the auditor should be liable in certain circumstances. However, it would not be reasonable for the auditor to always be liable.

Primarily, it will depend on whether failure to detect the fraud was due to shortcomings in the auditor’s work.

An auditor’s role is to form an opinion about whether the financial report as a whole is free from material misstatement, whether due to fraud or error. The auditing standards provide the legal requirements for the conduct of an audit, which is intended to provide reasonable but not absolute assurance that the financial report contains no fraud or errors. It is not a guarantee. The magnitude of any fraud, whether there was collusion and the sophistication of any concealment, will have a significant impact on whether the audit procedures are likely to identify that fraud.

"The auditor should be liable only if inaduacies in their audit resulted in failure to detect the fraud." Claire Grayston CPA

Due to these factors, the auditor is less likely to detect a fraud than an error, but the auditor still needs to be sceptical and identify and address the risks of fraud.
The Experts
Roger Darvall-Stevens
Roger Darvall-Stevens is a partner and director of RSM in Australia. He has over 25 years’ experience in forensic investigations and forensic accounting; fraud; bribery and corruption control; related training; forensic IT; compliance (including foreign bribery and corruption risk); and corporate security. Darvall-Stevens started his career with the Victoria Police, and spent 13 years with EY as a partner in fraud investigation and dispute services, before joining RSM.

James Madden CPA
James Madden is a director of cloud-based accounting and audit firm, Madden Partners. He has worked as an accountant for over 10 years, focused primarily on not-for-profit audits. Madden is a CPA Australia member, belongs to the National Accountants and Tax Association (NTAA), and is also a CAANZ member.

Claire Grayston CPA
Claire Grayston is policy adviser – audit and assurance, at CPA Australia. She is responsible for monitoring, influencing and contributing to public policy, regulation, standard setting and implementation of audit and assurance practice both within Australia and internationally. Grayston focuses on improving audit and assurance quality, through communication, education and resources, and supporting the future relevance and value of audit, through outreach, thought leadership and innovation.

cpasteve
Posts: 24
Joined: Wed May 03, 2017 9:24 am

Re: 1 June 2018 - CPA -Intheblack - Should auditors be held liable if they miss fraud?

Post by cpasteve » Fri Jun 08, 2018 3:14 pm

Interesting that in the board update email just received that Deloittes have resigned as CPA auditors.

JWheldon
Posts: 352
Joined: Wed May 24, 2017 6:43 pm

Re: 1 June 2018 - CPA -Intheblack - Should auditors be held liable if they miss fraud?

Post by JWheldon » Fri Jun 08, 2018 3:51 pm

Extract from announcement

"4. Group Audit role to be put to tender

The Board of CPA Australia has decided to submit the role of Auditor for the 2018 CPA Australia Annual Accounts to a competitive tender of appropriate auditing firms. Earlier this week Deloitte, the current auditor, advised it would not participate in the tender process. Deloitte has indicated it will work to transition to the firm selected by CPA Australia’s tender process. CPA Australia thanks Deloitte for the work it has done as the Group Auditor over the last twelve years."

Did Deloitte's resign due to the negative press, sick of the being held to account, when they are not normally questioned or other reasons?

What do members think??

So which firm would do an audit, when the CPA Australia accounts come under so much review from fellow professionals?

Maybe the WA Auditor General Office will do the audit?????

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Red_Ferrari
Posts: 79
Joined: Fri Apr 28, 2017 12:42 pm

Re: 1 June 2018 - CPA -Intheblack - Should auditors be held liable if they miss fraud?

Post by Red_Ferrari » Fri Jun 08, 2018 5:27 pm

The Board of CPA Australia has decided to submit the role of Auditor for the 2018 CPA Australia Annual Accounts to a competitive tender of appropriate auditing firms. Earlier this week Deloitte, the current auditor, advised it would not participate in the tender process.
Who writes this stuff? In which order did these two events occur? It's deliberate obfuscation.

We've had the entire board resign and now the auditor has resigned, but it's dressed up as tender.

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