[yeshua68]

I have a homework question that I'm trying to decide between two answers.

A company's independent auditors have the responsibility to:

a) assess the company's accounting policies
b) uncover all fraudulent activities

These are the two I've narrowed it down to. I'm leaning towards one but I'm not sure if it's correct. They both could be right.

[morgaine300]

If you're leanding towards one, tell us which one and why. And no, they aren't both right.

[yeshua68]

I'm thinking "uncover all fraudulent activity" because wouldn't an auditor catch something shady like recording revenue too soon etc. But my text book talks about Managers have the final responsibility on that.

[morgaine300]

Look at the auditor's statement. It most directly says the managers are responsible for the statements. However, catching "something shady" and who is responsible for the statements are not in opposition - it's not an either or. Management is responsible for the statements and the auditors are resonsible for assessing those statements, so sure they could catch something like recognizing revenue at an improper time, even though management is responsible for getting it right to begin with.

The fact that an auditor could and should try their best to uncover something shady does not mean that they will. (Find it, I mean.) And contrary to popular belief, they are not responsible for finding everything a company does. Auditors are responsible for making a reasonable effort to detect fraud, to decide that the statements reflect reality, followed GAAP, blah, blah, and state an opinion on that. I think the words "reasonable" and "opinion" are important in that. But asking them to "uncover all" fraudulent activity is like asking them to be God. (And I do think many people expect that of them.) In fact, they don't have a responsibility to reasonably find anything that isn't material. So that eliminates "all" right there.

So the statement is flawed by the "all" in that answer. For that matter, I don't like the word "activities" in that answer. (Too non-specific, but then, I'm bugged by things like that.)

Does it not seem reasonable that an auditor would assess the company's accounting policies? (Like when they recognize revenue, perhaps? ;)) Of course, I didn't see the other choices and I hate answering anything when I don't see all the choices.