Write a short essay addressing the following issues: Some managers commit undete

Question

Write a short essay addressing the following issues: Some managers commit undetected fraud in producing financial statements. Presumably, if the auditors were really diligent and the penalties for fraud were high enough, there would be no fraud -- yet fraud exists. Does this mean that auditors are not doing good job? Or is there an alternate explanation? What is the best institutional framework for reducing fraud?

References

Brickley, J. A., Smith, C. W., & Zimmerman, J. L. (2016). Managerial Economics and Organizational Architecture (6th ed.). New York: McGraw-Hill Education.

Explanation / Answer

The financial accounting has to be managed by sincere practices to ensure and protect any fraudulent measures . There are cases where management might be inclusive of such malpractises to protect their direct and indirect cost and prevent from disclosing investment or revenue. If high management colludes they could foster personal interest , auditor has to ensure that they review such statement with utmost sincerity. Mostly inspite of high penalties management continues to consider opportunity cost saving money higher , low chances of getting caught, corrpution , asset misappropriation are some of the cases.Thus it is their responsibility to risk calculate any unidentified transaction of huge sizes , any defrred expenses. transparency of transaction. Reporting any material mis statement, fillowing high accounting standard as per SAS 99 communicate fraud to the management. Ensuring timely detection , stricter actions without any bias, evaluate likhelihood of fraud, probe with more questioning to protect very purpose of auditing their financials , be diligent in evaluating frauds to reduce it.

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