Fraud detection in a financial statement audit

Abstract

The concept of fraud is broad but basically refers to an intentional act perpetrated by management or company personnel for illicit purposes to seek a personal advantage or benefit for a particular group. Another important condition is that it has a considerable impact on the financial statements, distorting the financial information, primarily referring to the Income Statement and the Balance Sheet.
An error is an unintentional act, and it can be committed by company employees due to forgetfulness or incompetence, which in any case does not have a major effect on the financial statements.
To detect fraud in a financial statement audit, the external auditor must be fully trained to identify it and must always maintain professional skepticism when encountering any suspicious matter during fieldwork in a specific audit.
The existence of Corporate Governance in the audited company is important because it guarantees the proper management of the company's money and resources. If good Corporate Governance does not exist, the risk of fraud and error is higher.
To conclude, the external auditor’s knowledge of accounting standards (IAS/IFRS) and International Standards on Auditing (ISA) is important to support the quality of the work performed by the independent professional.
It is also worth emphasizing that the financial statements are the responsibility of the company’s management, but the auditor becomes a professional who attests to the proper operation and validates the reasonableness of the financial information, which serves as a basis for third-party investors, employees, or the general public—hence the importance of timely fraud detection, if present, in a financial statement audit.