Financial Daily from THE HINDU group of publications
Thursday, Mar 07, 2002
Financial Daily from THE HINDU group of publications Thursday, Mar 07, 2002 |
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Opinion
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Accountancy Columns - Account Speak Broad fraud
ON FEBRUARY 28, when the Indian accountants were busy with Mr Sinha's speech, the American Institute of CPAs (AICPA) released the draft of a revised standard on fraud — "to provide auditors with additional guidance to improve the likelihood that audits will detect material misstatements of financial statements due to fraud". To open up their eyes a little more, in short, in the wake of growing concerns about fraudulent financial reporting. "Fraud is a broad legal concept," the draft explains unhelpfully; "and auditors do not make legal determinations of whether fraud has occurred," quite helpfully. Generally, three conditions breed fraud: a) management or employees have an incentive or are under pressure to commit fraud; b) circumstances exist — such as, the absence of controls, ineffective controls, or the ability of management to override controls — that provide an opportunity for a fraud to be perpetrated; and c) those involved are able to rationalise a fraudulent act as being consistent with their personal code of ethics. I liked the last one, though I won't be able to rationalise why! "Some individuals possess an attitude, character, or set of ethical values that allow them to knowingly and intentionally commit a dishonest act. However, even otherwise honest individuals can commit fraud in an environment that imposes sufficient pressure on them. The greater the incentive or pressure, the more likely an individual will be able to rationalise the acceptability of committing fraud." However, identifying such individuals is difficult, the draft concedes. "Management has a unique ability to perpetrate fraud because it frequently is in a position to directly or indirectly manipulate accounting records and present fraudulent financial information." Too plain? "Professional scepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence — regardless of any past experience or belief about management's honesty and integrity." "Relevant for us?" I ask of a local CA. "No way," he says. "We are already professionally septic."
D. Murali
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