@Kihangiri-stop lowering your guard, u are an american are u????$ The letter of engagement clearly states what a company wants the auditor to undertake. In most audits fraud detection is not part of the engagement/objective. The duty to detect fraud rests with the Big Cats-read Directors and has never been delegated to the auditors not unless they are carrying out INVESTIGATIVE AUDIT

The problem with many shareholder's is that they have never understood the role of auditors.

Auditors express their opinon on whether "the financial statements are materially mistated", their work is not to detect fraud, simply because the procedures they apply are not capable of doing so. Auditors opinion is based on materiality which in many cases is a very big number. This means that should they detect problems below this numbers, they can report this to management/directors, but are not allowed to disclose the same to the shareholders.

But more importantly because a statutory audit is more of a post morterm, the correct controls required to safe guard a company are the preventive one's which are supposed to be implementd by directors and management.

How would an auditor uncover a fraud being perpetrated by directors of a company? Directors who appointed the auditor and whose responsibility it is to avail the financial statements to be audited? What should be made clear is this:

1. It is the responsibility of the company to prepare the financial statements and make sure they reveal the true financial position of the company. Due diligence here is exercised by the directors, not the auditors. If the service provider is overcharging the company, the prerogative is with the management to compare such charges with other service providers and rectify the position.

2. The auditor's work is to review the financial statements as & when availed by the company. The auditor will design tests that will check the integrity of the figures in the statements. As long as the figures are supported (LPOs, invoices, DNs, 3.0), the auditor has no further work. Where there are queries, the auditor will raise the issue with the company for explanation. If a good explanation is not forthcoming, they auditor can qualify the accounts.

3. The auditor does not go into comparing invoices of service providers to check whether the charges are fair. That is the work of the company's accountants & management as stated above and laying the blame of overcharged services on an auditor is very far-fetched!

So for all you saying that an audit firm (whether PwC or Deloitte) are culpable in any way in the CMC or Uchumi issues, you could not be more wrong. As already said by many people, an external auditor cannot unearth a fraud that was done off the records or, as in the case of CMC, where all transactions are well supported (despite the overcharging)!

THE BOTTOM LINE

Auditor ‘watchdog’ not ‘bloodhound’

http://www.thebottomline...ticle&articleid=317

interesting debate, in my view audited accounts add very value when valuing a company. I have seen my accountant cook books the auditors didn't notice the glaring errors and of course he takes them out for lunch. It's always upon the investor to put a true value to an investment, it's a risk that's why you invest in a company you understand. if you are purchasing land you don't go to the government valuer to give you report, you must do the due diligence yourself, check the property if it has squatters.