According to ISA 240, fraud is " act by one or more among management, those charged with governance, employees or third parties, involving use of to obtain an or advantage"

Managerial fraud or fraud by those charged with governance is when looking at because if it is somebody who is completing fraud at that level, it is possible that it could be important in context of . Therefore, if they are or trying to change that is being presented that could result in . This is more difficult for auditors to because you have senior people in processes & procedures trying to fraud being found

When looking at fraud it can also involve participation of

has responsibility for fraud detection. They are responsible for such that they determine “is necessary to enable of financial statements that are from material misstatements, whether due to or ” (ISA 210)

also has responsibility for fraud detection. However, their responsibility is not to detect but there is reasonable expectation of detecting in financial statements arising from or

ISA 240 says "to identify & assess of material misstatement of due to fraud & to obtain sufficient appropriate regarding assessed of material misstatement due to fraud, through & implementing appropriate responses

Board of directors’ responsibilities in preventing fraud include: maintaining sound , shareholders’ & company & finally prevent & detect &

Responsibilities of directors to prevent fraud include: developing an appropriate (tone at top), establishing & system of , encouraging strong & developing , establishing an & reporting on effectiveness of company’s system

Fraudulent financial reporting achieved by , falsification, suppression or of accounting or , or of transactions or events, of accounting & inappropriate or in accounts

If are involved in fraud & error, auditors should report to . If are involved, they should consider reporting to . If there are senior people & option of reporting to audit committee is not , auditors should seek & report suspicions to . Auditors should process until it is satisfactorily resolved

Auditors are liable under & law. liability is most important form of liability in practice, particularly liability to . This can be sparked by factors such as: cost of , many actions being brought against , level of damages demanded by & bad as result of alleged . Here we need to think about how & how law is set out to look at auditors liabilities to & to understand how that has developed over last 60 years

One 'Act' that is in place when looking at criminal liability that & can potentially face criminal charges is . This provides that individuals commit an if they gain or cause someone to by: destroying, concealing, falsifying documents/records required for purposes & information making use of records or documents known by them to be materially , or

Another 'Act' that is in place when looking at criminal liability that & can potentially face criminal charges is . Person can be guilty of in three ways: fraud by , fraud by failing to & fraud by

Third 'Act' that is in place when looking at criminal liability that & can potentially face criminal charges is . Auditors who knowingly or recklessly issue an that is misleading, false or deceptive: guilty of offence. Also, auditors commit offence if they fail to provide in audit report of certain . Finally, business carried on for fraudulent purposes, anyone knowingly party is liable to or , or

With civil liability, if auditors have given clean on financial statements which turn out not to be & , user who loses through on statements may feel are one of those at fault. So when looking at opinion process, auditors give an & not that financial statements are & . But company, shareholders or others may them for damages to compensate for any they have suffered as result of alleged work

For action of negligence to , it must be shown that auditors owed to person bringing action. Auditors having relationship with company & can be by company under law. But many liability cases have been brought by , under tort & case law has developed as result

One distinct phase that case law is seen in is . In 1951 case, early case law suggested that if there was contract between & , they owed . In 1963 case, where knew or should have known about third party, & intended to rely on their report, they owe to that party. Following this case, could not be held where was not known to them. In 1981 &1983 cases, it was suggested that if should reasonably have that someone would rely on audited accounts, they could be even if they had not known person. In 1987 case, it was suggested that too great an emphasis had been placed on & not enough to existence of close & direct

In Caparo case, case was to determine if of company, owed to Caparo Industries who had in company & money as result. Basic principles of Caparo case were: while it may be that persons are likely to on financial statements, relationship between auditors & those persons are not close & direct enough to satisfy , any duty owed by auditors is to shareholders as rather than as , liability should not be imposed on , as this would lead to liability that cannot be because of time & identity of its beneficiaries

One part of three part test Caparo case established to establish duty of care is reasonable of damage. must be able to that damage could occur as result of . This is not thought to be to determine

Another part of three part test Caparo case established to establish duty of care is relationship of . There must be between plaintiff & defendant. This is said to be lack of defined test for & this may lead to as to when exists. Recently has become more central in legal decisions

Third part of three part test Caparo case established to establish duty of care is . Court must consider it , & to impose duty of care on for benefit of

Proximity will exist between A & B if in making statement, A knew: statement would be to B, statement would be in relation to particular , B would very likely on statement when making with respect to & B acted on statement to their

Another distinct phase that case law is seen in is . Cases since Caparo illustrate ways in which attempt to between case they have brought & Caparo case. Interesting feature of latter case is that it led to now common of adding to wording of standard audit report disclaiming responsibility to

Audit expectation gap- "Auditors are performing in manner which is in with & of others who are party to or interested in audit”. So it is difference between of those who rely upon concerning what auditors do & what they are to do

There are protagonists (parties with different ) in relation to process. They include , , &

Possible reasons for deficient performance gap include: lack of i.e. lack of , lack of & lack of & another is lack of independence i.e. , & independence

Deficient standards gap- Gap between what auditors can be reasonably to do & what & them to do. With these specific areas, auditors would look at &

To address (reduce) expectations gap that exists there has been of auditors duties, of auditors duties & society’s expectations