This report from the Audit and Assurance Faculty considers audit committee perspectives on the nature and extent of corporate fraud and what the corporate sector is doing to improve the chances of preventing and detecting it.
Audit committees and auditors do not set out to miss or ignore fraud. Fraud is deliberately hidden from, or misrepresented to, both those charged with governance and auditors. Material financial reporting fraud is often also complex. The reputational damage from fraud spreads far and wide, and can be greater than the cost of the fraud itself.
External auditors are concerned about material fraud within the financial statements, but audit committees necessarily look at fraud through the lens of risk management in the context of their wider corporate governance duties. Sharpening the focus on corporate fraud: an audit committee perspective therefore deals with fraud from a broader perspective than the first report. Sharpening the focus on corporate fraud: an audit firm perspective, published in July 2022, looked at corporate fraud from the perspective of auditors.
This report is based on interviews, conducted by ICAEW, with 14 experienced members of audit committees representing a wide range of large UK and international businesses. Most of the interviewees are audit committee chairs and most also serve on the board of the UK’s Audit Committee Chairs Independent Forum (ACCIF).
The interviewees’ wide-ranging views reflect the diversity of industries represented. However, an overwhelming majority of the interviewees emphasised that the fraud risk should not be underestimated, and that it is the responsibility of the entire board. Some interviewees also noted that fraud is not the only risk audit committees must address, and that it is not necessarily the most important. When asked about what kept them awake at night, cyber risks were the most common issue cited, according to the report.
