What a public company audit committee can do to prevent fraudulent financial statements and how external auditors can help

TopicAssignment Week 10 Due: 

Fraud detection by external auditors. Auditor revised ethic rules. Comparison of international auditing standards and the PCAOB standards 4.     Other topics of your choosing

You’ll be doing primarily a literature review, which means that you’ll be reading and reporting on the literature  I’m leaving the topics fairly broad so that you can take the research in the direction that most interests you.  You may wish to use a historical approach and look at the audit professions approach to audit failures related to fraud and our attempt over the past 50 or so years to change audit rules relating to fraud detection.  You might wish to explore the new Sarbanes-Oxley act and the AICPA’s reactions and how that will help the auditing profession do a better job at fraud detection (or not).

Quick Response

The audit committee can prevent fraudulent financial statements by engaging the employees and the management on the three indicators of fraud. They include knowledge about situations to look for, structure, and implementation of the internal controls. Education on the three indicators of fraud presents the company with an opportunity to report any suspicions about fraudulent activities especially regarding the financial statements (Margret & Peck, 2014). Another strategy includes segregation of the accounting functions. This helps the prevention of fraud through the reduction of incentives of fraud such as the opportunity to commit fraud. Segregation of duties entails the involvement of more than one person in the preparation of the financial statement. In addition, the audit team can establish a strong control environment, which entails enlisting the management to lead others through the demonstration of ethical behavior…

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