You are required to explain the auditors’ general responsibility. With regard to the prevention and detection of fraud and errors.
The responsibility for the prevention and detection of fraud and errors rests with the management of the entity.
The auditor on his part seeks reasonable assurance that fraud or error, which may be material to the financial statements, has not occurred or if it has occurred, the effect is properly reflected in the financial statements. The auditor should plan his work so that he has reasonable expectation of detecting material misstatements in the financial information resulting from fraud and error.
The auditor is and cannot be held responsible for the prevention of fraud and error. However, if the auditor comes across any fraud or error regardless of the materiality he should:
- Inform management as soon as possible;
- Carry out further procedures to confirm whether the fraud was an isolated case or indicative of others that had taken place;
- Evaluate whether the fraud could have an impact on his opinion.
- If the error or fraud is material the auditor should consider whether management has adequately disclosed the effect in the financial statements. If there is adequate disclosure there will be no need to modify the opinion. However, if the effect has not been disclosed in the financial statements the auditor should express a qualified opinion as appropriate.