Question

19 Answer saved Marked out of 1.00 Flag question Internal auditing reviews a new acquisition and flags a few problems with operations. Eventually, a new financial controller discovers the company is being defrauded a significant amount of money in the acquired operation. Senior executives blame internal auditing. Which of the following statements apply to fraud detection in this situation? I. Primary responsibility rests with management II. Internal auditing assumed primary responsibility in conducting the review. III. External auditors signed off on the accounts so they are at fault Select one: O a. II only b. I only o c. I and III o d. III only

Answer 1

The correct option is b.

Reason - The primary responsibility of prevention and detection of frauds rests with the management of an entity. An auditor internal or otherwise, his objective is to express an opinion on the financial statements whether they show a true and fair view or not. prevention and detection of frauds is a secondary objective of an audit. This was also elaborated in the case of Kingston cotton mill co., Ltd. that an auditor is a watchdog but not a bloodhound. which means that an auditor need not investigate deep into the matters of the company but should restrict himself on checking the correctness of the financial statements of the company.

The responsibility also cannot be put on the external auditors who has signed off on the accounts provided the auditor has done his work diligently and with care considering all the aspects of the financial statements.