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Fraud Epidemic: Auditors Gear Up for Heightened Fraud Detection Responsibility

April 11, 2024

by

Paul Dixon

#

SAPCompliance

Rampant fraud cases are sending shudders down the spines of regulators worldwide, with experts describing it as an epidemic.

So, just how bad is it?

According to a recently published report from financial services firm BDO, fraud in the UK alone more than doubled in 2023 compared to the previous year. The firm's latest FraudTrack analysis shows that the total reported value of fraud in the UK reached an astronomical £2.3 billion.

And the reality is this: Similar data is popping up from the US, the EU, Australia, and other jurisdictions internationally.

But what's that got to do with auditing? As it happens, quite a lot. That's because pressure is increasing on auditors to step up their fraud detection game - an area that hasn't always been the primary focus of the profession.

In February 2024, a statement from the International Auditing and Assurance Standards Board (IAASB) suggests that auditors will soon face more stringent fraud detection standards.

IAASB Makes Fraud Detection Move in 2024

The New York-based IAASB sets the global standards for auditing and quality control worldwide. Whether you are an auditor in Sydney, Frankfurt, or London, the standards apply universally to uphold the integrity of financial reporting in the global financial system.

Now, it's rare for an auditing body to grab the headlines. After all, business reporters prefer writing about actual fraud cases. So why did the IAASB get above-the-fold coverage on February 6, 2024?

The answer is simple: Auditors are set to play a crucial role in fraud detection, with profound changes to their responsibilities coming. Remember, the effects of fraud trickle down, impacting individuals and society.

In 2024 and beyond, auditors are increasingly expected to be on the frontline of fraud detection.

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Fraud Detection: Here Is What the IAASB Is Proposing

We now know that fraud is an epidemic that is growing year on year. Expanding on this, internal and occupational fraud committed by employees is also a massive part of the problem. For example, in 2023, Amazon's $9.4 million fraud case imprisoned former employees.

A VOQUZ Labs' white paper dives into the Amazon internal fraud case. You can read it by clicking here.

Returning to the IAASB proposal, what is the international auditing standards body suggesting as the way for auditors to detect fraud like in the Amazon case?

Here are some of the key changes:

  • Auditors are expected to take on a more robust role in identifying corporate fraud;
  • Auditors must show increased professional skepticism to discover fraud;
  • Auditors are urged to step up communication channels with both management and "those charged with governance" (TCWG), fostering transparency and cooperation in addressing fraud risks;
  • Auditors must play a role in identifying and responding to material misstatements of financial statements;
  • Auditors are expected to modernize their use of technology to enhance fraud detection capabilities, embracing innovative tools and automation to stay ahead of evolving fraudulent schemes.

It's important to remember that the IAASB is still in its proposal stage until June 2024. However, it's highly likely that the proposed changes will be implemented, given the pressing need to address the rapidly growing threat of corporate fraud.

Let's now focus on the final point on the list: technology.

How Technology Will Be Indispensable for Auditors

The IAASB's proposed revision to its Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements is massive, with over 160 pages (you can download the PDF here).

That's a lot of information! However, a crucial takeaway that all auditors need to know is that the IAASB is honing in on the pressing need for the profession to embrace technological solutions, such as automation.

So, what does the document say?

Considerable emphasis is placed on the modernization of standards concerning technology. Simply put, auditors must consider new and evolving technologies, such as automation, when looking for instances of corporate fraud.

To learn about how automation and real-time auditing are set to transform the profession, this VOQUZ Labs' article will be insightful: Unlocking the Power of Real-Time Monitoring and Auditing.

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Preparation Time: Next Steps Auditors Can Take Right Now

Step 1

The IAASB has already set in motion an educational campaign to get auditing professionals up to speed with the proposed global auditing standards in fraud detection. For example, a video series is in the pipeline so that 'stakeholders understand the proposed revisions and their implications for strengthening the financial reporting ecosystem.'

To be notified, the IAASB recommends following them on LinkedIn or subscribing to its mailing list.

Step 2

The next fundamental step for auditors is to delve deeper into the significance of technology, such as automation, in fraud detection and understand the rationale behind the gradual replacement of manual processes.

And to underscore this, let's consider some stark statistics:

  • It takes 18 months for an organization to discover fraud with manual processes
  • In 58% of cases, attempts to recover money fail
  • In only 40% of cases does manual auditing detect it
  • Most fraud using manual processes is detected by chance

This data is shocking. And the bottom line is that in 2024 and the years ahead, auditors are expected, as part of their professional standards, to embrace technology and automation to help combat corporate fraud.

How remQ Helps Auditors Using SAP to Detect Fraud Faster

Does your business use SAP ERP or S/4HANA? If so, you can immediately explore how automation can empower auditors to identify corporate fraud more efficiently - and faster - by talking to our remQ team today!

VOQUZ Labs' remQ software operates as a SAP add-on with a library of 100 pre-built shipped controls ready to run. Curious to know more? Watch our  introductory video. We would be delighted to answer any questions you have.

ABOUT THE AUTHOR

Paul Dixon

Paul is a RegTech content writer & strategist with extensive experience in digital marketing and journalism. His work has appeared in the Guardian newspaper. He also holds a degree in International Relations, where he studied global sanctions compliance and cross-border finance.

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