Auditing Collusion
An audit is a financial activity used to analyze an organization or business in regards to their financial information or accounts. It includes the examination, review and verification of financial documents and information, usually conducted by an independent, certified accountant. It is used to ensure that any paperwork and information provided is accurate.
Auditing collusion is a type of illegal activity in the auditing industry. It is a form of fraud which happens when more than one person conspires to deceive a third-party with false information. The intention of this deception is to benefit the conspirators in some way; this could involve illegally avoiding paying taxes or securing contracts with organizations.
The international organization of accountants, the International Accounting Standards Board (IASB) defines auditing collusion as “an act of commission or omission (which includes false representation) by two or more persons in the course of auditioning which results in material gain or loss to another or disadvantage to another.”
So, what are the consequences of auditing collusion? The key consequence is a breach of trust. This can have a wide-reaching impact, from leading to court proceedings, to damaging the reputation of the people involved and the companies involved if the deception is extreme or serious.
Auditing collusion can have serious legal and financial implications for the people and organizations involved. Most countries have enacted laws to prosecute individuals and organizations involved in auditing collusion. In the United States, the Sarbanes-Oxley Act of 2002 was introduced to increase compliance requirements and install criminal sanctions for individuals found to be involved in auditing fraud.
In the UK, the Fraud Act of 2006 makes the act of fraud itself an offence, punishable by up to ten years in prison, as well as making it illegal to enter into a fraudulent arrangement with another.
Auditing collusion can also be seen as a corporate governance concern; taking part in such an act can be seen as an indicator of a lack of ethical practices within an organization. It can also lead to a lack of credibility and trust in the reliability of financial information.
In conclusion, it is essential for organizations and businesses to take the necessary steps to prevent auditing collusion, as it can have serious and far-reaching legal, financial, and reputational consequences. Employing independent auditors, implementing appropriate systems and controls to deter illegal activities, and training staff on ethical practices and behavior are some of the key measures which organizations should take to prevent auditing collusion.