fraud and responsibilities of auditor in detecting and preventing of fraud

i DECLARATION OF ORGINALTY AND WORD ACCOUNT I hereby declare that the graduation project is based on my original work except quotations and citations, which has been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other course/degree at Help University or other institutions. The word count is 10,052 words. NGUYEN THI HIEN E0700282 ii ACKNOWLEDGEMENT First of all, I would like to express my sincere appreciation to my supervisor, Dr. Nguyen Hong Quan who has guided me throughout this study. His constant guidance, insightful suggestions, and constructive ideas are the essential inputs and encouragement for me in order to complete this study. The next, I would like to acknowledge to all manager, auditors and bankers who allowed and assisted me to collect all of necessary information for me to get this study done. Without their contribution, I could not be able to gather much information for my research. Lastly, I would also like to extend my heartfelt gratitude to my friends for their continuous support, encouragement and contribution, which have been crucial during the presentation of this report. My study cannot be finished without your supports. THANKS FOR EVERYONE iii FRAUD AND RESPONSIBILITIES OF AUDITOR IN DETECTING AND PREVENTING OF FRAUD BY NGUYEN THI HIEN OCTOBER 2011 Supervisor: NGUYEN HONG QUAN ABSTRACT The purpose of this paper is to discuss about the fraud and the responsibilities of auditor in detecting and preventing of fraud. Fraud can be considered as most concerning problem of the business. Because of this have more effect to all most of companies in the world. However, the companies can make more motivations from fraudulent activities, then, this trend is being likely continued in the futures. There are many types of fraud such as accounting fraud, investment frauds, financial fraud, etc. Fraud is one of the big issues to make more damage in the company. Therefore, the responsibilities of auditor play important in detecting and preventing fraud. In this study, I will discuss about this, and some issues that related to audit procedure that auditor applied in working process. iv TABLE OF CONTENT DECLARATION OF ORGINALTY AND WORD ACCOUNT i ACKNOWLEDGEMENT ii ABSTRACT iii TABLE OF CONTENT iv LIST OF TABLE vii LIST OF ABBREVIATIONS viii CHAPTER 1: INTRODUCTION 1 1.1 Background of study 1 1.2 Objective of research 2 1.3 Problem of Statement 3 1.4 Limitation of research 5 1.5 Structure of research 5 CHAPTER 2: LITERATURE REVIEW 7 2.1 Fraud 7 2.1.1 Definition of fraud 7 2.1.2 Differences between fraud and error 10 2.2 Motivations of Fraud behavior 12 2.3 Responsibilities in fraud detection and prevention 13 2.3.1 Responsibilities of internal auditor 13 2.3.2 Responsibilities of external auditor 14 2.5 Audit procedure 17 v CHAPTER 3: RESEARCH METHODOLOGY 19 3.1 Research problem 19 3.1.1 Aim of the research 19 3.1.2 Objective of the research 19 3.2 Data collection 20 3.2.1 Primary data 20 3.2.2 Secondary data 21 3.3 Research Instrument 22 3.3.1 Survey 22 3.3.2 Questionnaire 23 3.3.2.1 Questionnaire about the extent of fraud 25 3.3.2.2 Questionnaire about the responsibilities of auditor 25 3.3.2.3 Questionnaire about the audit procedure that auditor applied in detecting and preventing of fraud 26 3.4 Sampling 26 3.5 Limitation of research 26 CHAPTER 4: FINDING AND ANALYSIS 27 4.1 Analysis of responses related to extent of fraud 28 4.1.1 Existence and extent of fraud 28 4.1.2 Differences between fraud and error 30 4.2 Analysis of responses related to the role and responsibility of auditors for fraud detection and prevention. 31 4.3 Analysis of responses related to audit procedure 34 CHAPTER 5: CONCLUSION 38 5.1 Awareness of respondents about the extent of fraud 38 vi 5.2 Awareness about the responsibilities of auditor 39 5.3 Awareness of respondents related to audit procedures 40 5.4 Recommendation 41 5.5 Scope of future research 42 REFERENCES 44 ANPENDIX A: QUESTIONNAIRES 46 vii LIST OF TABLE TABLE 1: Responses by groups of respondents TABLE 2: Perceptions of extent of fraud TABLE 3: Responses related to the different between fraud and error TABLE 4: Responsibility of auditors for fraud detection and prevention TABLE 5: Audit procedure applied for fraud detection viii LIST OF ABBREVIATIONS ISA: International Standard of Auditing SAS: Statement on Auditing Standard 1 CHAPTER 1 INTRODUCTION 1.1 Background of study In recent year, fraud crime has more increased in over the world, and professionals believe that fraud is this trend will be continuing in the future. Evidence is, there are many cases about fraud that have occurred throughout over the world such as Enron and WorldCom. When scandals happen, companies have tried to keep these scandals quite, sometimes outsiders did not know. Many business frauds are happening in everyday, but it does not noticed. Unfortunately, scandals are the tip of the iceberg and represent visible failures. These companies could really go down for such setbacks. In addition, with the development of technology, especially, it is expanding of computers into businesses. These can make organizations more vulnerable to the fraud. In late year 2001, Enron and WorldCom events declared bankrupt with debts of huge scandals involved in the operation of Authur Andersen auditing firm. This event has forced experts paid more attention to audit risk and continually improve the quality of audit activities. Therefore, the auditor plays important role in the work of detecting fraud. The need for auditors may be seen as a response to the agency problem and the audit functions as a mechanism to attest to the accountability and stewardship of company management to reduce the possibility of innocent mistakes and deliberate misstatements such as fraud and management manipulation (Chandler, Edwards and Anderson, 1993). The role of auditor plays importance in detecting and 2 preventing fraud, although it is difficult to uncover the conclusive fraud. In order to combat the fraud in businesses, management of business as well as the auditors, must have to do the right job and their obligations. Therefore, in this study, the researcher will discuss more detailed information relating to fraud and the role of auditor in preventing and detecting its. 1.2 Objective of research This study is to help the reader to understand some issues that related to fraud and the responsibilities of auditor in preventing and detecting fraud. Accordingly, this study will provide some objectives below. The first objective, the researcher wants to provide all necessary information relating to the fraud. In order to help readers understand about the topic, fraud will be dividing in to three parts. The first past will support for the overview of fraud. The second past will provide some detailed information relating to difference between the fraud and error. The third part will answer the question why some companies are motivated by fraudulent. The next objective is to clarify the importance of auditor and the responsibilities of auditor in preventing and detecting fraud. Following this, the objective of this study is to obtain from the view of some respondents about mistake actions in fraud. We can warn businesses about fraud and the potential threats of it. In addition, the readers can understand about the audit procedure that auditor applies in searching and preventing of fraud. [...]... to fraud and the responsibility of auditor in preventing and detecting fraud The objective of chapter 2 is to provide some of various studies and theories around this definition of fraud and responsibilities of auditor Then, this also helps readers to have overview of this topic 2.1 Fraud In this section, we will discuss some of aspects that related to the fraud In order to help the readers understand... suggesting that internal auditors are as aware as external auditors of where fraud is likely to be detected (Apostolou et al 2001) Therefore, in this section, the researcher will discuss about the responsibilities of both internal and external auditor in detecting and preventing fraud 2.3.1 Responsibilities of internal auditor Internal auditor plays an important role in fraud detection following by... serving as principal Audit procedures are one of the procedures to detect fraud in auditing of financial statement Audit procedure is very important to help auditors improving the quality and minimize the risk of testing activities of auditing However, in the current practical, applying of audit procedures to detect fraud in financial reporting are remaining incomplete due to many complex nature of fraud. .. internal auditors (or manager) of company have directly responsible for preventing, detecting and dealing with fraud and errors in the company through the development and implementation of regular maintenance accounting system and internal control systems appropriate Because of inherent limitations of accounting, systems and internal control systems can be difficult to complete exclude the possibility of fraud. .. include searching or detecting accounting fraud? Do you feel that it is auditor' s responsibility to prevent accounting fraud? Do you think that auditing standards may make auditors have the responsibility to detect and prevent accounting fraud? 25 3.3.2.3 Questionnaire about the audit procedure that auditor applied in detecting and preventing of fraud There are five questions that we used in this research... awareness for fraud of 27 auditors and managers, and bankers group They also have audit experience and accounting qualification However, we realize that the most respondents are responses of auditors (60 respondents of auditor in total number of respondent is 110), this indicates that the concern of auditors with their responsibilities in detecting and preventing fraud, followed by managers and bankers... understand overview of fraud in the company  To distinguish between the fraud and error  To discuss about the motivation of fraud behaviors  To help the readers can understand about the responsibilities of both internal auditor and external auditor  To discuss about some of auditing standard that using in this study 19  To show for the readers about the audit procedure that auditor using to apply in. .. the internet, we also have more programs to help us to prevent returning of questionnaires that incomplete For auditor' s group, they are auditors who have experience in auditing and may exercise this profession in Vietnam The most of them are working in Auditing of State; some people are independent auditors in other companies After have randomly allocated number of auditor, we obtained a sample of. .. concealing activities in contrast 8 to the truth, making influence and causing of financial losses for an individual or an organization This includes theft, embezzlement or any attempt to steal, illegally obtain, and misuse or damage the property of the company This definition also has similar content with the definition of Weirich and Reinstein, they define fraud as “intentional deception, cheating and. .. more about the responsibilities of auditor in preventing and detecting for fraud by answering these issues above 4 1.4 Limitation of research Fraud is one of broad definition Many topics related to fraud such as accounting fraud, financial fraud, and so on Thus, this is limitation of study because it is hard for researcher to cover all topics here Moreover, time is one of the limitations of this study . the fraud and the responsibilities of auditor in detecting and preventing of fraud. Fraud can be considered as most concerning problem of the business relating to fraud and the responsibility of auditor in preventing and detecting fraud. The objective of chapter 2 is to provide some of various studies and