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Brirfly Describe the Analysis of the Auditors Role in the Fraud

Analysis of the Auditors Role in the Fraud

Bankrate Inc was founded in 1976. Its founder Robert K Heady established it as a printer for the bank rate monitor. It serves in three countries US, Canada and China and trades its stock in the NYSE. In the eve of 1996, it moved its operations to online platform and today its online network includes;,,,, credit among others (Amin & Mohamed, 2016). In 2010, the company estimated that it received more than 150 million viewers on its sites. It has acquired some of its competitors including; Trouve Media, Insweb corporation and Insurance in 2009, after trading for more than 10 years in the NASDAQ, Bankrate Inc WAS ACQUIRED BY Apax partners for a value estimated at  $571 Million. Bankrate inc has also been providing financial education services, insurance quotes and credit cards. In 2014, it determined car costs in each state based on the gas and insurance costs.  Some of its key personalities include, Kenneth S. Esterow who is the CEO and President after being appointed in January 2014. It has been voted in numerous awards since 2010.

The category of fraud in the financial statements includes two sub-categories: financial and non-financial fraud (Beasley,2015). The last in comparison with the first is not so significant, so we will limit ourselves to considering the category of financial fraud

Auditing is a comprehensive comprehensive study of the financial and economic activities of an economic entity whose purpose is to detect various facts of fraud, financial fraud, other illegal actions, both on the part of the management apparatus and other employees, as well as other third parties persons who are entitled to give instructions in relation to this economic entity, in addition to identify the risks of fraud and propose a system of measures to minimize them.

Auditors have developed a model for classifying known types of fraud by category, known as the "tree of fraud"  . The main categories of fraud according to this model are: fraud in financial reporting, misappropriation of property and corruption. Each of these categories has unique characteristics that distinguish it from other categories. This is important, since a thorough knowledge of the categories and their specific characteristics is a key moment for the successful development of programs aimed at preventing and detecting fraud( Bolen, 2014)..

In carrying out financial and business activities, any company runs the risk of encountering and facing in fact with illegal actions, financial fraud and employee fraud, which ultimately reduces the financial result of the company's activities, leads to losses, loss of part of the customer base, property losses for the owner, before losing the business itself. To detect fraud and the risks of its occurrence, it is not enough to resort to standard methods of operational audit, as fraud is often a deliberate process, accompanied by special and ingenious measures to hide it. Fraud in the financial statements is characterized by willful misrepresentation or omission in quantities or disclosures in the financial statements to deceive users of financial statements (Lisic & Wang, 2015)..

Categories of Fraud

In particular, fraud in the financial statements includes manipulation, falsification or change in accounting records, as well as supporting documents used in the preparation of financial statements. This group also includes deliberate misapplication of accounting principles for the manipulation of results. The study conducted by the Association of Certified Investigators for theft investigation, fraud in financial reporting, compared to other forms of fraud committed by corporate employees, causes greater financial damage to affected individuals, and has the most negative impact on shareholders and investors. The audit allows to get an objective professional opinion from the side on their business connections, which will give confidence to the business owner when making strategic decisions. Secondly, it is the detection and monitoring of suspicious transactions (Weirich & Churyk, 2017). A comprehensive analysis of transactions and documents of counterparties allows you to identify suspicious transactions. Each transaction, both standard and fraudulent, is reflected in the company's IT systems. Business analysis and visual analysis allows you to identify and investigate schemes of illegal withdrawal of assets, conflicts of interest, hidden patterns, dependencies and other facts that play a decisive role in detecting fraud. Forensic consultants identify illegal actions of employees, collect facts and evidence, assess the damage caused to the company, and help plan further steps to strengthen the control system.

 This is an express check of accounting and financial reporting. Express check allows you to identify the manipulation of data using false or unreliable documents and accounting entries, falsification or change in accounting records, fraudulent transactions with funds, reflected in the accounting of "dead souls and expense documents, excessive write-off of consumables and other machinations (Chan & Vasarhelyi, 2018)..

Fraud is a type of economic crime. It can be described as a concept embracing all the various means invented with the help of human ingenuity in order to obtain an unjust advantage of one person over another by deception, cunning, abuse of trust, and concealment of truth.

To prevent, detect and investigate fraud, you need to have an idea of ??what possible fraudulent schemes exist. The categories of fraud can be characterized by the following 7 characteristics : the fraudster, the amount of fraud (valuation), the frequency of fraud, motivation, significance (materiality), for good or what is directed, the size of the affected company.

Financial fraud in most cases implies an exaggeration of revenue in the reporting. This can be done in many ways. First, you can take into account future revenue in the current period (temporary differences). Secondly, you can take into account the revenue that never was reported.

According to International Auditing Standards, the auditors failed to comply with two auditing standards; they are

  • ISA 220- quality control for an audit of financial statements

When the manipulation of financial statements was being done, no controls had happened therefore the executives could easily manipulate the financial statement

  • ISA 240- The auditors responsibilities relating to fraud in a financial institution

The auditors responsibility is to detect fraud in the event that executives have made wrong or fraudulent entries.

For Bankrate inc, the controls were not in place to avoid this type of fraud. These are some of the financial controls that were circumvented or not done in order for the company to have such fraud.

  • Senior management must create the right culture in financial reporting. This is the first and the basic reporting control in a company. Being ethical will prevent financial fraud like in this case. The company had not inculcated ethical standard especially among its directors.
  • Establish an effective whistle blower mechanisms

Controls in Financial Fraud that were Circumvented

In case a whistle blower comes to report, the company should know how to protect the source and the person and do thorough investigations on the same. Although there is no trace of a whistleblower, however, it is important that the company creates effective whistleblower mechanisms (Bolen, 2014)..

  • Analyze accounts receivable

This is where the manipulation occurs most. The executives inflated revenues while understating the expenses. It was not analyzed before posting.

  • Create a robust internal audit department

Unless compromised, an internal audit department will detect fraud before it escalates. The internal audit department was by-passed when the executives committed the fraud.

  • Have skeptics in the board of directors and question any change of external auditors who could question bankrate inc financial reports before they are announced to the public.
  • Questioning of any extraordinary and complex transaction that is posted in the financial statement.
  • Effectiveness of operations including reliability of financial reporting and compliance with laws and regulation in accounting

The auditors work is evident as the bankrate Inc executives were charged and the company told to pay $15 million.

There are various accounting policies that should be used to prevent fraud and financial manipulation. The policies and recommendations include an elaborate and comprehensive internal audit.  An elaborate internal control will detect fraud and manipulation by executives. Internal control policies and procedures are designed to provide an assurance that financial reporting will safeguard assets and reliability in financial reporting. The company will utilize all reasonable internal controls including monitoring and control of assets therefore reducing potential for financial fraud (Kramer, 2015)..

Employees should be stewards of funds and assets of the company. They should have fiduciary code of conduct and should follow the guidelines set in international accounting standards and should comply with it. The employee should make sure that the financial reporting standards are followed and that utmost exposure is followed (Shinde & Merkle, 2015).. Revenues should be determined and expenses checked during preparation of the financial statements to prevent fraud.

Management responsibility and reporting

It is the responsibility of the management to report credible results especially in a publicly listed company. Financial statements should also be reported in accordance to the required financial statement guidelines. 


Amin, H. M., & Mohamed, E. K. (2016). Auditors’ perceptions of the impact of continuous auditing on the quality of Internet reported financial information in Egypt. Managerial Auditing Journal, 31(1), 111-132.

Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2016). Auditing and assurance services. Pearson.

Beasley, M. S. (2015). Auditing cases: An interactive learning approach. Prentice Hall.

Bolen, J. (2014). Want to minimize the potential for a fraud and abuse investigation of your drug testing practices? Then take control of your testing platform and clinical laboratory partner. Published December 3, 2010. Auditing for Compliance and Education, Inc.(ACE).

Bolen, J. (2014). Evolution of Auditing: From the Traditional Approach to the Future Audit 1. In Continuous Auditing: Theory and Application (pp. 285-297). Emerald Publishing Limited.

Chan, D. Y., & Vasarhelyi, M. A. (2018). Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.

Kramer, B. (2015). Trust, but verify: fraud in small businesses. Journal of Small Business and Enterprise Development, 22(1), 4-20.

Lisic, L. L., Silveri, S. D., Song, Y., & Wang, K. (2015). Accounting fraud, auditing, and the role of government sanctions in China. Journal of Business Research, 68(6), 1186-1195.

Shinde, J. S., Willems, J., Sallehu, M. M., & Merkle, M. P. (2015). Establishment of GAAS: Impact of an Auditing Fraud. Journal of Accounting and Finance, 15(1), 40.

Weirich, T. R., Pearson, T. C., & Churyk, N. T. (2017). Accounting and Auditing Research: Tools and Strategies. Wiley Global Education.

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