Audited Financial Statements In Relation To Fraud

As auditors, unless specifically engaged, we are not conducting a fraud examination when auditing a clients' financial statements.  I believe this is a public misperception at times.  While we do inquire about any existence or knowledge of fraud during our financial statement audits, under SAS 99, we are not responsible for detecting any fraud.  Detecting fraud is not the goal of our audits.  A financial statement audit is to determine, if in our opinion,  that the financial statements are free of material misstatements that could affect a prudent readers judgement.  We would, of course, bring any instance of any fraudulent act to the attention of the necessary parties.  So what are some differences between financial statement audits and fraud examinations? 

As many of you may know I am in the process of obtaining my CFE (Certified Fraud Examiner) designation.  Contained within my study materials, provided by the Association of Certified Fraud Examiners is an excellent breakdown determining some main differences between auditing financial statements and a fraud examination. 

TIMING

Audit - Recurring, audits are conducted on a recurring basis.

Fraud Examination - Non-recurring, conducted only with sufficient predication.

SCOPE

Audit - General examination of financial data.

Fraud Examination - Conducted to resolve specific allegations.

OBJECTIVE

Audit - Purpose is to express an opinion on financial statements or related information.

Fraud Examination - Purpose is to determine whether fraud has/is occurring and to determine who is responsible.

RELATIONSHIP

Audit - Non-adversarial in nature.

Fraud Examination - Adversarial because involvement is to affix blame.

METHODOLOGY

Audit - Primarily by financial data examination.

Fraud Examination - Conducted by document examination, review of outside data (public records)  and interviews.

PRESUMPTION

Audit - Professional Skepticism is a requirement of independent auditors.

Fraud Examination - Resolution is approached by attempting to establish sufficient proof to support or refute allegations of fraud.

I recently wrote an article for my company newsletter about reducing fraud risk within your organization.  You can read the full article here.