Auditors Responsibility for Detecting Fraud Assignment

Auditors Responsibility for Detecting Fraud - Assignment Example Business failure occurs when a business is unable to repay its creditors or meet investors because of prevailing business conditions. A recent fraud that shocked the financial society is the financial collapse of Lehman Brothers, a big investment firm in U.S. Reuters carried news report that the accounting firm of Ernest & Young helped to hide financial problems of Lehman Brothers that led to its downfall (McKena, Francine,2010) Reuters reported that Ernest & Young tolerated the fraudulent transactions of Lehman Brothers that used an accounting technique known as â€Å"Repo 105, a business model designed to hide billions in liabilities. The firm used this technique to hide as much as $50 billion in assets from the balance sheet. (McCool Grant, 2010) As a process, management puts the internal control to be assured that operations are in place. Internal control, as Carl Haus(2014) defined, are rules designed to promote proper functioning of business. It is also designed to protect company assets, Cari suggested. In this context, Independent auditors rely on the accuracy of internal controls to form their opinions. As such, management has the responsibility of providing a reliable financial position of the company. Based on this premise, failures of internal control started with top management who failed or ignored internal controls for a dependable financial reporting. The Auditors, on their part failed or disregarded the weaknesses of financial information or errors presented so as not to disrupt the operations of Lehman Brothers. Financial statements done by Lehman Brothers were manipulated by management to make it appear that it was a sound company.