Regulation

ACCA releases fraud prevention recommendations

With audit quality a ‘concern in many countries’, the report offers recommendations based on research with key players of the financial reporting ecosystem, including financial statement preparers, auditors, regulators, boards and audit committees, and investors

The Association of Chartered Certified Accountants (ACCA) have released a new report providing recommendations for regulators, standard setters and auditors in tackling fraud and addressing ongoing concern issues.

The report has been issued by the ACCA, Chartered Accountants Australia and New Zealand (CA ANZ), Chartered Professional Accountants of Canada (CPA Canada) and the Canadian Auditing and Assurance Standards Board (AASB).

According to the report, the audit expectation gap “needs to be narrowed for the benefit of the public interest”, including what users expect from the auditor and the financial statement audit versus the reality of what an audit is.

The research found that factors contributing to the expectation disparity include gaps in knowledge, performance and the evolution of audit.

One of the main recommendations for tackling fraud is “encouraging” the involvement of forensic specialists in risk assessment where a high risk is identified. However, auditors “should still apply their professional judgement” when determining how to respond to identified fraud risks, said the ACCA. 

Additionally, the report recommends that the International Accounting Standards Board (IASB) and the International Auditing and Assurance Standards Board (IAASB) should “supplement the current binary approach” to disclosing material uncertainty on going concern with additional going concern disclosures.

The report found it is “not necessary to have a ‘suspicious mindset’” for enhanced fraud identification when planning and performing the audit. 

Instead, the associations suggest that the IAASB and national standard setters consider areas where the auditing standards could be “enhanced” to guide audit practitioners in the application of professional scepticism.

In addition, a holistic approach is “especially needed” to narrow the expectation gap related to fraud and going concern, where “all stakeholders will need to play vital roles in meaningful change”.

Maggie McGhee, executive director of strategy and governance at ACCA, said: “Audit needs to evolve if it is to be trusted and meet demands of public interest. 

Fraud and going concern were top of the agenda for our roundtable participants, but also gaps around knowledge and the need for everyone in the financial reporting ecosystem to understand each other’s role. It is an interconnected system on which all players rely.”

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