It is generally acknowledged that fraud is a serious problem for businesses of all sizes, costing billions of dollars each year.
a. Studies suggest that businesses may lose as much as 6% of revenue every year to fraud – which would equate to S$885 billion of the nation’s 2010 gross national product of S$14.5 trillion, if that estimate is correct. b. Fraud is also a major problem for accountants and auditors (both internal and external) because they are perceived (rightly or wrongly) to be the most directly responsible for establishing internal controls and for preventing or detecting fraud.
Fraud is the strongest leading indicator of a business’ demise. When businesses fail, blame is often placed on the accountants and auditors, who are highly likely to find themselves embroiled in costly litigation, adding further to the social cost of fraud. Concern over fraud in business has grown in the wake of recent, well-publicized accounting scandals.
a. This has prompted the auditing profession and regulators to further define responsibilities relating to fraud prevention, deterrence, and detection, including that of the independent auditor. b. This is evidenced by the recent promulgation of various laws and auditing standards that emphasize the importance of controls relating to fraud prevention and detection along with the responsibilities for both management and their auditors.