Financial Statement Fraud

Abstract

Financial reporting frauds and earnings manipulation have attracted high profile attention recently. There have been several cases by businesses of what appears to be financial statement fraud, which have been undetected by the auditors. In this thesis, the main purpose is to identify some of the reasons why auditors have not detected financial statement fraud and to suggest possible solutions for improving the audit process in these areas. In order to achieve this target, some cases of the fraudulent financial statements of revenue recognition will be analysed. The main reasons why auditors did not detect financial statement fraud from the technical side were application of analytical review procedures as “sufficient audit evidence;” weaknesses in audit risk model and risk assessment concerning internal control; and audit failure in revenue recognition and related-party transaction disclosure. The ethical issues that relate to the detection of fraud include auditor independence and the amount of non-audit services provided by the auditor. Several solutions will be recommended to enhance the audit process in detecting the financial statement fraud in accordance with the reasons we have determined.