"If there is any indication of fraud the auditors will not sign the financial statements"
I agree with the emphasis on "any indication"
My Brother was an auditor and he led me to believe that auditors can't detect fraud if it is well concealed.
He also told me they are not liable in the absence of negligence in cases of fraud.
The judgement put weight to that argument
In a decision handed down just before the end of term, auditors have won an important House of Lords ruling in Moore Stephens v Stone Rolls Limited [2009] UKHL 39 limiting their liability in cases where a ‘one-man’ company is used as a vehicle for fraud. The law lords dismissed by a majority of three to two a negligence claim brought against an audit firm for failing to detect a massive fraud at Stone & Rolls Limited, a trading company that fell in the late 1990s – holding that the liquidators could not bring a claim for damages when the company itself was responsible for the fraud.
Its very easy to boost profits by simply concealing expenses from the auditor.
The mythical cash that emerges would be more difficult to substantiate in the absence of a rogue banker or Shifty CFO.
Unreal cash deposits have certainly been substantiated in the past to get the green tick. Parmalats huge deposit with Bank of America is a case in point.
"The company was forging documents to “verify” a false account statement for a phantom €4 billion in cash. That is world-class brass. Parmalat even went so far as to forge the signature of an actual Bank of America employee. How the auditor sought and allowed this document to be produced by Parmalat itself remains a mystery."
I believe the CFO faxed it to the auditor who naturally thought it had come directly from the bank.
I hope our auditors don't rely on bits of paper and insist on getting the cash on the table so they can count it.
Interesting times ahead.
XPD Price at posting:
3.3¢ Sentiment: Hold Disclosure: Held
