Any relationship between the external auditors and the entity, other than retention for the audit itself, must be disclosed in the external auditor's reports these rules also prohibit the auditor from owning a stake in public clients and severely limits the types of non-audit services they can provide. If an internal audit activity is outsourced, the chief audit executive within the organization should be responsible for overseeing the service contract and the overall quality assurance of these activities, reporting to senior management and the board regarding internal audit activities, and following up on engagement results. External auditors are responsible to the owners of the company which could be anybody from its owners to the shareholders to the government or general public internal auditors are responsible solely to the company’s senior management.
Internal auditors are responsible solely to the company’s senior management a closer look an internal audit is designed to look at the key risks facing the business and how the business is managing those risks effectively it usually results in recommendations for improvement across departments. An external financial auditor’s responsibility is to express an opinion on financial statements and to ensure that documents are free from material misstatement these auditors do not express an opinion on the effectiveness of the organization’s internal controls. Auditors’ responsibility for fraud detection sas no 99 introduces a new era in auditors’ requirements relating to audit planning, and sas no 55, consideration of internal control in a financial statement audit, as successful perpetrators of fraud are familiar with the audit procedures external auditors normally perform.
Contributing to the reliance on auditors is the 2002 passage of the sarbanes-oxley act this act effectively tightens accounting controls and regulates the roles of internal and external auditors because of this act, the external auditor faces added responsibilities in detecting and reporting fraud. Internal audit should only take on any part of this management responsibility with the prior and formal approval of the audit committee in such cases, the responsibility of internal audit should be limited (in my opinion) to a secondary role in detection while management remains responsible for the primary detection role and fully responsible for prevention. Auditors will enter a much expanded arena of procedures to detect fraud as they implement sas no 99 the new standard aims to have the auditor’s consideration of fraud seamlessly blended into the audit process and continually updated until the audit’s completion. Management should be responsible for the system of internal controls, including the ability to prevent and, as necessary, detect potential theft and fraud internal audit should only take on any part of this management responsibility with the prior and formal approval of the audit committee.
Before this act, some companies were able to engage their contracted external auditors into performing internal audits section 404 of the act outlines the duties and responsibilities of the. In a survey across several professional groups -- including board directors, internal and external auditors, and financial executives -- 87 percent agreed it is the job of senior executives in an organization to set the tone and establish the procedures necessary to deter financial reporting fraud only 10 percent said it was the job of the board of directors, and only 3 percent believed that responsibility falls to internal or external auditors. They are also responsible for the internal control procedures of an organization and the prevention of fraud detection of fraud if an external auditor detects fraud, it is their responsibility to bring it to the management's attention and consider withdrawing from the engagement if management does not take appropriate actions.
External financial auditors perform their work on a sample basis and do not test every transaction, so they can’t be expected to catch all fraud or errors instead, your government’s management should design, implement, and maintain internal controls to limit unauthorized transactions in financial statements. If a government is able to allocate resources to establish an internal audit function, some of management’s responsibilities for the prevention and detection of fraud can be delegated to internal audit internal auditors are generally well-versed in evaluating the potential and probability of fraud, errors, or noncompliance and can review internal controls for effectiveness. I am writing a research regarding audit expectation gap: the role of external auditors' for fraud detection there has been some confusion or misunderstandings between what auditors'think they should do and what public think they (auditors) should have been doing.
For example, “some people seem to confuse falsified documents, which the auditor can’t authenticate, and falsified accounting records, which auditors should authenticate,” said douglas. In addition, the act separates the internal and external audit duties before this act, some companies were able to engage their contracted external auditors into performing internal audits section 404 of the act outlines the duties and responsibilities of the external auditor.