Question

The investing public generally understands that it is very difficult for auditors to detect fraud, so investors do not hold auditors accountable when auditors fail to detect fraud?

Answer 1

Answer:

False

Explanation:

"An auditor is a watchdog and not a blood hound". The purpose of conducting an audit is to provide 'reasonable assurance" and not 'absolute assurance' to the management of an entity and users of financial statements.

An auditor cannot be held liable for any misstatement or fraud if he proves that he did his work diligently, and acted bona fide, and as per the evidence available to him, arrived at such an opinion.

But, in cases wherein an auditor has acted grossly negligent or colluded with management or window dressing of accounts, such auditor would be held personally liable and accountable. For e.g Enron case.