（1995）Changing the model for prevention and detection of fraud.pdfVIP

CHANGING THE MODEL FOR PREVENTION AND DETECTION OF FRAUD 3 Changing the model for prevention and detection of fraud Hubert D. Glover and June Y. Aono The traditional model for evaluation of audit risks related to detection of irregularities is not effective Introduction However, the savings and loan débˆacle during the mid- Accounting firms have incurred significant legal 1980s created a new wave of public concern and expenses over the last few years defending cases filed by Congressional inquiry which eventually led to the third parties which claim that they lost their investment formation of the Treadway Commission. The Treadway because of the auditor’s inability to detect fraud and a Commission’s charge was to help the accounting related material misstatement. The Big Six alone between profession maintain self-regulation duties while prescribing effective recommendations to guide the ASB’s 1990 and 1993 paid out over $1 billion to settle cases development of standards to help detect and prevent related to fraud including Ernst Young ($400 million in fraud. The Commission’s 1987 report led to the ASB’s 1992) and Arthur Andersen ($65 million in 1993) issuance of nine statements of auditing standards (SASs) settlements to the Resolution Trust Corporation. called the “Expectation gap” in 1988. These nine SASs Litigation