Zzzz Best
[pic 1]UNIVERSITEIT ANTWERPEN[pic 2]Academiejaar 2017-2018Faculteit Toegepaste Economische WetenschappenMaster in de toegepaste economische wetenschappen (Major Accountancy/ Minor revisoraat)Case 2: ZZZZ BestAnke MeeussenSara Meeussen Prof. Ann VanstraelenQuestion 1: Do you believe that auditors should be held liable for failing to discover fraud in situations such as ZZZZ Best, where top management goes to great lengths to fool the auditors? Explain. From the point of view of the public interest, we know that it is preferable for stakeholders if auditors could ensure them that no fraud is present in the audited financial statements. This way they can make the most optimal investment decisions and the economy will be positively influenced. However, when we look at the point of view of the auditors, we can conclude that they cannot live up to the expectations of the public due to the fact that there will always be people with bad intentions that will find loopholes in the existing rules and regulations. We do not think that auditors should be responsible for ensuring that no fraud has been committed during that financial year.
Preventing and detecting fraud is in the first place the responsibility of the company’s management and those who are charged with governance. According to ISA 240, the auditor is only responsible for obtaining reasonable assurance that the financial statements do not contain material misstatements, whether caused by fraud or error. The responsibility of the auditor is thus limited to the detection of misstatements that will have a material effect on the financial statements, but there will always be a risk that smaller and insignificant misstatements will not be detected. Especially in cases where top management is involved in fraud, we think that auditors should not be held responsible for failing to discover fraud.Nevertheless, auditors still have an obligation to look for fraud when performing an audit. They can do this by being alert to certain red flags and evaluating the control environment and the effectiveness of the internal controls. In the case of ZZZZ Best, we do not think that the auditors of Ernst & Whiney can get off scot-free. According to us, they failed to honor their obligation to look for fraud and to put the public’s interest above their own interests.To conclude, we think that the auditors in the case of ZZZZ Best are not completely off the hook. They are still partly responsible for not detecting the fraud earlier. According to us, they did not perform their duties as they should have done due to the fact that they were not independent enough from the company. Ernst & Whiney did not want to lose ZZZZ Best because it was one of their biggest clients and they were too dependent on their payment of the audit fees. They were too afraid to lose the client that they did not dare to ask the tough questions and they lacked professional scepticism. However, as mentioned before, the auditors cannot be held responsible for the whole situation because it is possible for top management to make it difficult for auditors to identify fraud.