While erroneous or fraudulent financial reporting can occur even with a well conducted audit, the failure to comply with professional standards will typically make the auditors vulnerable. An understanding of auditing standards is thus needed to either defend or prosecute accounting professionals.
Before advocating for plaintiffs or defendants in audit malpractice, securities fraud or other actions, attorneys should clearly understand five important facts about auditing standards.
1. It’s true – it is not the auditor’s responsibility to identify all fraudulent activity in the organization.
2. Management is responsible for the financial statements.
3. Uncorroborated management assertions are not audit evidence.
4. While a formal audit program and appropriate planning are required by the professional standards, rigid adherence to a standard audit program and failure to consider needed modifications to it do not meet professional expectations.
5. The timing and sequence of audit procedures may reveal whether the work was properly planned and executed.
Read the full article to learn more. This article was first published in Chicago Lawyer Magazine’s Litigation Support special section of October 2010 and is reprinted here with permission.
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