reasons why auditor cant detect financial statement fraud?

Question

can it be due to lack of audit evidence?

or can it be lack of audit independence?any issue on this matter?

Answer 1

In doing an audit of financial matter, there are lot of things to consider:
a.) expertise of the person doing an audit thus the more complex issue is being audited, one would require an auditor that have a lot of experience.
b.)Cost benefit concept- is another issue because in doing the audit the cost to conduct the audit most not be more than the benefit expected otherwise the audit function would be useless. The reason why auditors do statistical sampling and try to application professional judgement on which areas are high risk , medium risk or low risk and the the amount and time of audit procedures would be depend on the earlier mentioned level of risk. Like a petty cash fund would not merit much time an effort compared to inventory or receivables.
c.)Collusion- is another factor because fraud done by multiple persons is harder to detect compared to one done by only by one person.

Even though if an auditor has enough experience and doing the audit in a professional manner, he cannot be deemed infallibe. Auditing is a complex procedure which entail doing some professional judgement based on the audit evidence.
Thus even how good a set audit evidence and how experienced the auditor , there is still that slim possibility of not detecting a fraud at a given set of time, but sooner or later with additional evidence that could be correlated with the previous audit report , it would be more likely that the fraud be uncovered.

Answer 2

It can be due to a few reasons, like:
* lack of audit evidence. It has always been said that you can't audit omissions. If someone hides invoices in his drawers, you might never know there're hidden liabilities
* familiarity. If you've been auditing the same client for years, you fall into what we call a "comfort zone", and you lose your professional skepticism, which is so important in audit
* collusion. If the CEO and CFO collude and tell you the same wrong story, you won't know it's wrong
* forgery. Auditors are not handwriting experts and are not likely to detect forged documents
* sampling is a necessary part of audit. Nobody audits 100% of all transactions. They zoom in on risk areas and material components and in doing so, may miss errors

Answer 3

mostly it depends on how deep the auditor digs. the evidence always comes out if you dig deep enough.