Audit Expectation Gap: Fraud

The purposes of a company audit

The main responsibility of an auditor is to express an opinion on whether the financial statements are materially correct or show ‘a true and fair view’. The work carried out by the auditors provides the evidence to support this opinion.

There are a number of other responsibilities an auditor must conclude on:

  1. Whether proper books of account have been kept.
  2. Whether the directors report is consistent with the rest of the financial statements.
  3. For a company limited by shares, whether an EGM is required to discuss the future of the company as the net assets have fallen to below half the called up share capital.


The responsibility for the prevention and detection of fraud lies with the management of the company, and the main emphasis should be on putting in place controls to prevent fraud, creating a commitment to a culture of honesty and ethical behaviour within the company.

The responsibility of the auditor is to maintain professional scepticism during the course of the audit. When the auditor has reasons to suspect a fraud may have taken place, they have a responsibility to report it to the relevant authority. Fraud should be reported to those charged with corporate governance within the organisation, the Gardaí and if relevant, the Revenue Commissioners under the Criminal Justice Act.

The testing and gathering of evidence involved in carrying out an audit are often insufficient to ensure financial statements are free from fraud. To ensure financial statements are free from fraud would be a considerably more expensive and time consuming exercise than a statutory audit. This is because fraud may involve sophisticated schemes designed to conceal it and in certain cases collusion of a number of parties.

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