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March 04, 2008

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Independent Accountant

The problem: Substance over form and that the Big 87654 don't get sued often enough. See my recent post about the new ".001 standard" to avoid consolidating conduits. What a farce.

Paul Ricci

"When companies are involved in these complicated transactions, auditors often don't have the time, training, or knowledge to spot questionable items. When I audited a financial services company during my internship, I didn't really understand their business let alone the documentation that I was reviewing to ensure that controls were operating properly. So much of the work we conducted was based on mimicking the prior year's work papers that even after levels of review I believe fraud could have easily slipped by." [italics supplied]

To this point....I would like to clarify for readers, that having worked at the largest of the BIG 4 audit firms for over 6 years leaving as a manager, interns would not be obligated or trained to perform fraud detection steps as they would not have the experience to make such assessments on a very sensitive topic, the senior, manager and partner reviews are designed in the audit programs to assist in identifying potential fraud areas. What is more, part of the audit is to look at the events, circumstances and relationship from prior years and compare them to the current year to see what is new or different this year. This assist with determining scope changes in audits and whether additional testing would be done on any changes. Interns and staff level people would be given tasks to compare results from last year to this year and more senior auditors would be required to review and assess those results and change the audit plan accordingly. So, this does not surprise me that an intern might have this point of view; but it is not represenatitive of everything that goes on in an audit.

Further, under auditing standards, auditors are required to have steps to help identify fraud, but are not required to detect fraud in their audits. They are required to make an opinion as the the material accuracy of what is disclosed in the financials and as such fraud can play a factor, but even in the best audit there can be manipulation of data that can undermine an auditor's best efforts. Auditor for the most part try to do their best to detect instances of fraud, however, regulators are, under current standards the policemen of fraud.

I am not trying to defend all auditors, just trying to claryfying the comments made.

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