Financial executives, internal auditors, and external auditors are not completely on the same page when it comes to owning responsibility for deterring and detecting financial statement fraud, finds a report by Anti-Fraud Collaboration.
The report finds there are significant expectation gaps among the four groups that make up the financial reporting chain. The areas of greatest disparity appear to be:
- Who has the primary responsibility for deterring financial reporting fraud.
- How confident each group is in their ability to detect material misstatements.
- Whether each party appropriately strikes the balance between trust and skepticism.
The report also reveals that a large majority of respondents (87 percent) believe that financial executives have primary responsibility for deterring financial reporting fraud.
The group that owns primary responsibility for detecting financial reporting fraud is less clear. Although most (52 percent) designate financial executives, a sizeable minority (31 percent) place the onus on internal auditors.
The vast majority of board members (96 percent) are confident that the other three groups are able to identify a potential material misstatement due to fraud. Most board members (75 percent) are also confident in their own ability to identify material misstatements, although that belief is shared significantly less so by the other groups. For example, only 36 percent of internal auditors are confident in the board’s ability.
Although both external and internal auditors identify skepticism as key to performing their work, less than half of internal auditors (46 percent) say they strike the right balance between trust and skepticism. By contrast, the majority of external auditors (70 percent) say they strike an appropriate balance.
The Anti-Fraud Collaboration was formed in October 2010 by the Center for Audit Quality, Financial Executives International, the NACD, and The IIA. The four organisations represent members of the financial reporting supply chain.