BACKGROUND OF THE STUDY
From the auditor’s point of view, “fraud may be broadly classified as deliberate steps by one or more individuals to deceive or mislead with the objective of misappropriating assets of business, distorting organization’s apparent financial performance or strength, or otherwise obtaining an unfair advantage”.It may start as a genuine mistake, be successfully covered up and develop there after into a full fledged long-terms fraud.Alternatively, it may be a “one-time walk in rip-off”. It ray engineered from within (i.e. employees or managers or both) or from outside (i.e. business contacts or the general public) or combination of the two. The misappropriation of assets may involve the creation, alterative suppression of accounting records, vouchers and documents, or tampering with equipments (e.g. meters, files, containers) or the misuse of time, property or services.The distortion of financial performance or position is more concerned with puffing on a good front or window dressing and is usually perpetrated bymanagement using creative accounting. Fraud may occur because responsibility for prevention is not allocated, because dishonesty is accepted as inevitable, known cases go unpunished and the diseases spread; because security is thought too expensive or covered by fidelity bond.It is not the auditor’s purpose in carrying out an audit to determine whether or not frauds of any kind have been perpetrated by servants of his clients. As hope said in Kingston Cotton Mill (No. 2) 1896; (the auditor) does not guarantee the discovery of all fraud.As has been stated, the auditor’s duty is to assess whether or not the published accounts accurately represent the true state of his client’s business and to produce report addressed to the owners in which he expresses his opinion of the truth and fairness, and sometimes other aspects of the financial statements. The phrase “true and fair” does not imply that the accounts are correct in every detail and the presence of minor inaccuracy would not invalidate the auditor’s opinion. It ishowever, obvious that if a material fraud has been perpetrated and is not discovered then the published accounts will not reflect the true state of the client’s business.Consequently, auditors make a contribution to the detection of possible fraud even though “reliance on the auditors to detect fraud is misplaced”. The first stage of an audit is designed to establish if the accounting records are accurate and provide a reliable basis for the preparation of accounts. This objective can be achieved by checking all the routine transactions which took place during the financial year and this process might uncover fraud, except where fictitious evidence have been carefully created.However, the cost of such an approach is prohibitive. Fortunately, it possibleto reduce the volume of test without greatly reducing the validity of opinion by using sampling technique. Using such an approach almost as likely to detect fraud, which would be found by a far comprehensive examination. But even this approach is also be expensive. As a result, the auditors adopt a different method, which relies extensively upon the organization’s system of internal control and internal checks. The essence of the approach is to analyze and evaluate the system and then to carry out tests to establish that the controls are operating intended and constitutes a reliable basis for the preparation of the annual accounts and to determine the required substantive testing.The examination of the system is usually done with the following fundamental consideration:IThe possibility of defalcation/fraud, either permanent or temporary.ii.the possibility of undiscovered errors occurring.iii.the possibility of accounts being deliberately distorted.If the internal control is very weak, it may notbe possible to express an opinion at all on the accounts presented. If on the other hand the internal control is strong, there could be a minimization of the amount substantive testing used in arriving at an opinion.The second stage of an audit is much more likely to detect a major fraud. Here, substantive evidence is sought in support of all items appearing in accounts. This evidence is required to show, inta alia that the asset actually exist, that the company has good title to them and that theyas correctly shown as regards cost.Evidence is also required in support of items appearing in the profit and loss accounts. Much of the evidence is derived from documents already in the possession of the company and subjected internal control, but otherevidence is derived from physical inspection and direct from their parties.In carrying out this process, the auditor inevitably concentrates on fib higher value items and those, which are more easily susceptible to misappropriation.At the final stage ofan audit, the search for and examination substantive evidence may contribute to a large extent in detection fraud. The auditor in performing his duty aims at being thorough a systematic, but there is no doubt that some carefully planned and highly ingenious schemes can defeat the most thorough and systematic of audits.Thus quoting from Justice Hope in the Kingston cotton mill case of 1896”“Auditors must not be liable for not tracking out ingenious and carefully laid schemes of fraud when there is nothingto arouse their suspicion, and when those frauds are perpetrated by tried servants of the company and are undetected for years by the directors. So to hold would make the position of an auditor intolerable”.Though the auditor in carrying out his work should exercise due professional care and reasonable skill but need not approach it with suspicion. However, if he (auditor) is put upon inquiring by anything he discovers during the course of his checks, must investigate it until he reasonably satisfies himself as to the explanation. If material irregularities are discovered, he must report accordingly –either to the directors or to the members as appropriate. It is convincingly clear however, that only irregularities (Perhaps Innocent) and fraud could arouse the auditor suspicion. The courts have had occasions to consider many cases where was held on the facts of those cases that the auditor ought to have be put on inquiry. References to some of these cases, which are in no way definitive, will indicate some of the factors which the auditor ought to consider. In Brown and Wright v. Thompson, Pluckett and co (19939) act 397, the auditor was held negligent in that on striking the trial balance in successive years, he discovered a deficiency of up to fivethousand pounds which he put down to book keeping error rather than tracking down he real cause; namely fraud.Other areas have been omissions, increasingly or unusually large cash balances, knowledge of dishonesty in a servant and entries made after relevant data which are deemed ought to have put the auditor upon inquiry. The auditor will normally be held liable if in the course of his checks he overlooks some errors, omissions or suspicious circumstances or fails properly to investigate the matter having detected it. If the overall programme of his audit work is reasonable, it is unlikely that the auditor will be held liable if that programme of work did not included the examination of some accounting records or documents which contains some obvious errors on its face which even a most cursory examination must have uncovered. Where the fraud or error does not have effect upon the financial state of the business, it is doubtful that whether the auditor would be held liable where the details of the auditreasonably did not deal with the area of the fraud or error. However, where the fraud or error has a material effect upon the financial state of the business, the onus upon the auditor to show he was acting reasonably in not discovering it will be heavy.the research therefore seek to evaluate the role of the auditor in managing fraud.with a case study of unileverplc
STATEMENT OF THE PROBLEM
The main factors contributing to today’s increased level of fraud included:Growing complexity of organizations.
Ever-increasing speed of modern commerce and computerization.,History of inattention.,Understaffing of internal audit
functions.;Acceptance of some level of fraud as the ‘cost of doing business’.Outdated and ineffective internal controls.
Aggressive accounting practices.Increasingly transient employees. Many organization do not consider this underlying factors
They run and manage the organization without meticulous check of their accounting process, records, or system.
The result is the consistent and massive fraud in many organization which have wreck some and others are at near collapse
This is not aiding to support government effort in trying to build a strong and virile economy.
Therefore the problem confronting this research is to evaluate the role of audit in managing fraud in the organization
With a case study of uniliverplc
OBJECTIVE OF THE RESEARCH
SIGNIFICANCE OF THE RESEARCH
The research shall profer possible measures in managing fraud through proper audit in the organization
It shall also serve a useful source of information to managers and accounts of firms
STATEMENT OF THE HYPOTHESIS
1 Ho The level of fraud in uniliver is low
Hi The level of fraud in uniliver is high
2 Ho Audit in uniliver is not significant
Hi Audit in uniliveris significant
3 Ho The role of audit in managing fraud in uniliverisnotefective
HI The role of audit in managing fraud in uniliver is effective
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