Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

So an auditor couldn’t pick up any red flags to a corruption case. Why is that a problem?

with 2 comments

Getting back to the original question of whether a CPA could identify in the alleged incident that there was some kind of a fraudulent transaction during an audit (assuming it actually happened) – – I am thinking the answer is it would not be possible to find the fraud, even if you were looking for it.

So, what’s the problem?

That’s where this gets real difficult.  There is probably an expectation from the public that if this kind of major fraud was going on in your government client, then you would have found it.  And that’s a problem for you as the CPA.

Likewise, if a fraud of this type was going on in your business client (changing the circumstances from the current allegation of the mayor initiating the bribe request to the hypothetical of your business client offering the bribe) the impact on your client could be quite severe – horrible publicity, indictment and jail time for the key owner, massive legal costs and penalties.  Could become a fairly serious going concern issue.  (Duh!)

How likely is it for an auditor to identify this kind of corruption case in my hypothetical?  I think it is very unlikely.  Again that makes it real difficult because there is probably an expectation that you would be able to do find it.  Especially if discovery of the scheme by the authorities could collapse the business.

Surprise! — I don’t have any answers.  The reason I mention this is so that we CPAs can learn from this situation.  Then we can ponder and think.

Full disclosure again:  I have met the newly installed mayor of Upland and even visited with him at business luncheons.  I have not talked to him about anything related to this case and have no intention to do so.  Everything I know comes from the public arena.

If you are so inclined, pray for the new mayor and the city council.  Also pray that our legal system will get to the truth of what are currently only allegations.

Written by Jim Ulvog

March 17, 2011, 9:37 am at 9:37 am

Posted in Audits, Fraud

Tagged with ,

2 Responses

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  1. […] So an auditor couldn’t pick up any red flags to a corruption case.  Why is that a problem? […]

  2. […] So an auditor couldn’t pick up any red flags to a corruption case. Why is that a problem? […]

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