The various rules and principles of accounting are laid down in order to ensure that common norms and standards are adopted by accountants all over the world in preparing financial statements and reports that reflect the accurate status of the business. Corporations have been disseminating numbers that are increasingly unreliable. In recent time, we have seen a lot of misleading financial statements that resulted in the recent scandals and the closure of some of the big firms such as Arthur Anderson. Individuals and institutional investors rely on financial reports every day. If corporate reports cannot be trusted, investors are victimized and suffer immensely. Today, it becomes impossible for investment mangers to do their jobs of shifting through companies, public statements, comparing companies within industries, and making the decision that will earn or cost them millions or billions of dollars.
Adherence to accounting principles can in most part result in well-presented financial statements, however in the establishment of the accounting principles it's still difficult to predetermine all instances that will result in financial statements that are not misleading. I believe that we could further increase the scope of audits, improve the quality of information provided to the public, improve auditor education, and protect auditor independence in order to restore trust in auditing and accounting principles. .
First, fraud detection must be recognized as a responsibility of auditors. The scope of audits must be expanded, and looking for fraud must be made an affirmative audit obligation.
Recently, PricewaterhouseCoopers publicly embraced the need for fraud detection as part of the audit function. The New York Times characterized such a change as risky for auditors, noting that such a course might expose them to increased liability. Yet it is hard to imagine greater liability than the profession has already taken on by failing to increase its fraud detection responsibility.