SEC Chief Accountant Reminds Auditors of Obligation to Identify Fraud Risk

SEC Acting Chief Accountant Paul Munter reminded independent auditors of their obligation to detect and prevent fraud in financial reporting.

In a public statement, Mr. Munter said that many audit firms have fallen short of fulfilling their obligations. He highlighted instances where firms failed to exercise professional conduct and care in their reviews and noted two recent SEC disciplinary actions brought against auditors for their alleged failures with respect to properly identifying fraud risks. (see footnote 19).

Mr. Munter advised audit firms to maintain a strong system of quality controls and encouraged auditors to continually reassess fraud risks throughout the accounting process. He added that adhering to the PCAOB's auditing standards will better position audit firms to review financial statements for fraud. Mr. Munter warned that the value of an audit and its role in protecting investors is diminished when auditors do not have the proper controls in place to ensure that their reviews properly identify cases of fraud. He urged accounting firms to review the auditing standards set by the PCAOB as they relate to risks of fraud to ensure that audited financial statements are free of material misstatements, whether created in error or by fraud.