Fraud can be found early in the history of our world as men have made use of tricks, manipulation, and treachery in order to acquire money, land, goods, or trust, with the overall objective of making a profit. The fraud negatively affects an economy by causing huge financial losses, weakening social stability, threatening democratic structures, leading to a corrupting, and compromising economic and social institutions. Fraud represents the sum of irregularities and illegal actions committed with the intention of deceiving or presenting false, incorrect, or incomplete declarations and documents.
The Financial statements are the basis for measuring the performance of any company, accounting fraud in any business damages financial structure Including the investors’ confidence. The following are some of the types of frauds related to accounting and audit:
- Misappropriation of Cash
- Misappropriation of Goods
- Undervaluation of Liabilities or Over-valuation of assets
- Sale and other incomes of the next year may be shown as income or sale of the current year.
- Intentional misuse of accounting principles, policies, and procedures.
Both management and auditors have roles to play in the prevention and detection of fraud. The best scenario is one where management, employees, both internal and external auditors work together to combat fraud. The approach of senior management and all employees must be such that the company is fraud-resistant hence, has the final responsibility for implementing the mechanisms of detecting and preventing a fraud early on.
Management has the responsibility for the prevention and for the detection of fraud. Where the Management is responsible for the day to day business operations, developing and implementing controls, authority over the people, systems, and records. The management must take professional assistance in laying down internal controls if they do not have the expertise.
Auditors need to test for the strength of internal controls. Auditors must take steps to ensure that senior management is aware of the risk and materiality of fraud. Having good internal controls in place does not guarantee that there will be no frauds, but reduces the possibility of its occurrence.