Can an auditor ever be a first responder to financial frauds?
| Date | 13 July 2012 |
| Pages | 291-304 |
| Published date | 13 July 2012 |
| DOI | https://doi.org/10.1108/13590791211243138 |
| Author | G. Stevenson Smith |
| Subject Matter | Accounting & finance |
Can an auditor ever be a first
responder to financial frauds?
G. Stevenson Smith
School of Business, Southeastern Oklahoma State University,
Durant, Oklahoma, USA
Abstract
Purpose – A first responder to a crisis acts by stabilizing the situation and preventing further losses
to victims. The purpose of this paper is to explore the issue of whether auditors can act as first
responders to a financial fraud.
Design/methodology/approach – This paper reviews Securities and Exchange (SEC) regulations
and auditing practice pronouncements to identify the role of digital evidence in those statements.
Findings – Auditors will act as first responders if such a role is required in SEC regulations or under
the auditors’ professional practice guidelines. Recent SEC regulations and practice guidelines are
reviewed to determine if any such role exists. The effectiveness of a first responder to financial frauds
is dependent on the tools they use to evaluate the crisis.
Originality/value – In order for auditors to act effectively, they must carefully take into
consideration fraudulent digital documents.
Keywords First responder,Financial fraud, Auditor, Section 10A,Audit practices, Auditing, Fraud
Paper type Research paper
First responders are the team that comes into action when a crisis situation is unfolding
or is expected to take place. Emergency medical personnel are an outstanding example
of first responders as they are called into action to stabilize accident victims and
transport them to trauma experts. Police departments have emergency respon se teams
that are called into action when a violent crime goes beyond the abilities of local police
who are the first responders. In both cases, the job of the first responders is to identify
the victims, contain the situation, and prevent further loss until professional specialists
become involved in the crisis. First responders have a role at the beginning of a crisis
situation that ends when experts with higher levels of skill can be called to remediate
the situation. First responders generously extend their services to third parties and
society receives the benefits. It may seem strange to consider auditors as first
responders, but when a financial fraud or other illegal act is suspected of having
occurred during an audit, third parties expect the client’s auditors to act as first
responders. As first responders, auditors must take the appropriate actions to identify
the fraud, stabilize the situation, and prevent continuing resource losses for their client.
First responders do not attempt to shy away from their responsibilities to third parties.
When suspected illegal acts are thought to have occurred, it may be necessary for
auditors to become involved in a Section 10A investigation under Securities and
Exchange Commission (SEC) rules. Further, auditors have a role under practice
guidelines to be alert to the occurrence of financial fraud and other illegal acts in the
performance of an audit. As the majority of frauds are digitally based, any effort to
stabilize and prevent further client losses involves good electronic documentation
collection procedures[1]. Digital documents are considered to be any business record
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Financial frauds
291
Journal of Financial Crime
Vol. 19 No. 3, 2012
pp. 291-304
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791211243138
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