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The Role of Auditing in the Management of Corporate Fraud

Ethics, Governance and Corporate Crime: Challenges and Consequences

ISBN: 978-1-78350-673-6, eISBN: 978-1-78350-674-3

Publication date: 17 July 2014

Abstract

Purpose

This chapter adopts Porter’s ‘audit trinity’ approach comprising internal audit, external audit and audit committee to discuss the role auditing can play in the management of corporate fraud.

Design/methodology/approach

The chapter maps the historical background of and the developments in external audit as an assurance service, the internal audit function and the audit committee. Based on this, it explains the nature, types and possible causes of corporate fraud within the context of business risk with a view to establishing how auditing can help in managing such frauds.

Findings

The chapter highlights the relationships that should exist between the three audit types in order to support a sound internal control system as a tool for preventing and detecting corporate fraud.

Research limitations/implications

The chapter identifies cost, opportunity, connivance and managerial override as factors that could limit the ability of auditing to manage corporate fraud. It also suggests ways of addressing these limitations.

Practical implications

As the current upward trend in IT adoption for corporate operations continue to open new sets of corporate fraud windows, this chapter examines how an entity’s internal controls can be used to prevent and detect these growing fraud schemes.

Originality/value

The chapter’s unique strength is its adoption of a holistic approach to auditing to suggest ways of managing corporate fraud – a novelty in the corporate fraud literature. It is hoped that future research in the area will bring empirical insights to the issues raised and perspectives covered in the chapter.

Keywords

Citation

Omoteso, K. and Obalola, M. (2014), "The Role of Auditing in the Management of Corporate Fraud", Ethics, Governance and Corporate Crime: Challenges and Consequences (Developments in Corporate Governance and Responsibility, Vol. 6), Emerald Group Publishing Limited, Leeds, pp. 129-151. https://doi.org/10.1108/S2043-052320140000006006

Publisher

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Emerald Group Publishing Limited

Copyright © 2014 Emerald Group Publishing Limited