Financial Crime World

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Auditors’ Role in Detecting Financial Crime: A Matter of National Importance

Financial crime, including fraud, corruption, bribery, and money laundering, has a devastating impact on the European Union’s economy, affecting citizens’ situations and employment opportunities. According to estimates, financial crime costs the EU economy €120 billion annually, equivalent to 10% extra cost of doing business or 5% of a company’s annual revenue.

The Auditor’s Role

A statutory audit is a legally mandated check of financial accounts, ensuring that companies’ financial statements are accurate and reliable. The auditor forms an opinion on these statements, which stakeholders such as investors and shareholders rely upon when making decisions.

The auditor can help deter potential wrongdoers and uncover financial crime by:

  • Alerting management to incidents of fraud or non-compliance with relevant laws and regulations
  • Reporting suspicious transactions to competent authorities
  • Communicating any findings in the audit report

The statutory auditor operates within a specific legal framework that contributes to tackling financial crime. The EU Statutory Audit Regulation 537/2014, Directive 2014/56/EU, EU Anti-Money Laundering Directive 2015/849, and International Standards on Auditing (ISAs) are just a few examples of the regulations and principles that auditors must adhere to.

What Auditors Can Do in Practice

Auditors cannot directly prevent financial crime from happening, but they can tailor their work to increase the chances of detecting it. They gather evidence by:

  • Inquiring management
  • Evaluating internal control systems
  • Observing physical inventory counts
  • Analyzing variances in account balances or transactions

When suspecting a financial crime during an audit, auditors must ensure that this is followed up with further investigation and communication.

What Auditors Cannot Do

An audit is not a guarantee for the financial statements to be free from any fraud or error. There are limitations to what extent an auditor can tackle financial crime due to statutory audit’s legally limited scope to a company’s accounts. Additionally, auditors are not alone in this fight; it requires a joint effort by all relevant parties to achieve tangible results.

Collaboration is Key

Successfully standing up to financial crime depends upon collaboration between:

  • Business leaders
  • The accountancy profession
  • Regulators
  • Standard setters
  • The financial sector

We call for a coordinated approach to make the most out of technological opportunities and develop data analytics tools and new skillsets for combating financial crime.