Accounting Fraud
...ght the auditing course, which introduces students to the purpose and conduct of audits of financial statements by independent CPAs. I always stressed that an auditor is duty-bound to exercise professional skepticism, which means that the auditor should challenge the accounting methods and reporting practices of the client in order to make sure that its financial statements conform with accounting standards and are not misleading — in short, that the financial statements are fairly presented. Indeed, the words "fairly presented" are the exact words used in the auditor's report. Key Concept To be a good auditor, you have to know your stuff, but this isn't enough. You should be tough as nails on the accounting methods of your client. Your job is to be the agent of the shareowners and other users of the business's financial report. The auditor should never be a weak-kneed, look-the-other-way, let's-go-along-with-management reviewer of a business's accounting methods and financial reporting practices. Auditors, in theory, should be tough-minded enforcers of accounting and financial reporting standards. Obviously, this theory has holes in it. The number of well-known companies that engaged in accounting fraud in recent years that was not discovere...