Auditing

1. Auditors Position and duty in
regards to Detection and
Prevention of Errors and Frauds.

2. An Auditor is a watch dog
• It is summed up in the case Kingston Cotton
Mill company.
• In this case it was remarked
‘An auditor is a watch dog & not a blood hound’
• As a watch dog, auditor’s duty is limited to
mere verification of accounts and he is not
responsible for the detection of errors and
frauds.

3. • However, the auditor is appointed by the
shareholders to protect their interest.
• He has to make every efforts to detect errors
and frauds and to suggest ways to prevent the
same.
• The duty of an auditor to detect errors and
frauds are also upheld in many cases
• In India, the duty of an auditor to detect
errors and frauds has been emphasised by the
Council of Chartered Accountants.

4. • The auditor has to detect errors and frauds.
But while performing this task, he need not be
a blood hound.
• He is not bound to be a detective
• He is not an insurer against errors and frauds.
That is, he does not guarantee that the books
do not contain any errors and frauds.
• However he has to exercise reasonable care
and skill in the detection of errors and frauds
• In short, the auditor is not just a watch dog.
But at the same time, he need not be a blood
hound

5. Auditors duty regarding
Prevention of Errors & Frauds
• The auditor does not do anything directly for the
prevention of errors and frauds.
• His role in the prevention of errors and frauds is
only indirect.
• He can indirectly help in the prevention of errors
& frauds by advising the management
• By detecting errors and frauds, the auditor puts a
moral check upon the staff of the firm
• It creates a sense of fear in the minds of those
who are responsible for errors and frauds. This
fear reduce the scope for errors and frauds.

6. An auditor can contribute indirectly to the prevention
of errors and frauds in the following ways
• If the internal check system in the orgn is
inadequate, he can suggest to the mgt a better
system of internal check.
• He can suggest to the mgt the proper methods of
keeping accounts
• He can suggest to make adequate external
security measures to avoid the misappropriation
of goods
• He can suggest to the mgt dispense with the
services of dishonest employees etc.