Case study on the overall audit process Example | Topics and Well Written Essays - 1250 words

On the overall audit process - Case Study Example They did not aid the embezzlers, did not know about the embezzlement, and did not perform recklessly. But they failed to comply adequately with GAAS and thus failed their role as auditors. Not knowing about the embezzlement was the problem: It is the role of an auditor to discover embezzlement, financial impropriety and dishonesty. The definition of â€Å"duty of care† has changed over the centuries of auditing tradition. In 1896, Justice Lopes defined the duty of care thusly: â€Å"It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution which a reasonably careful, cautious auditor would use...An auditor is not bound to be a detective, or, as was said to approach his work with suspicion, or with a forgone conclusion that there is something wrong. He is a watchdog, not a bloodhound. He is justified in believing tried servants of the company in whom confidence is placed by the company. He is entitled to assume that they are honest and rely upon their representations, provided he takes reasonable care† (Morgan, 2000). Under this standard, Mitchell & Moss did no wrong. But this standard is no longer sufficient, especially as the complexity of financial transactions mount. In 1958, Lord Denning established a new norm: â€Å"To perform his task properly he must come to it with an enquiring mind - not suspicious of dishonesty - but suspecting that someone may have made a mistake somewhere and that a check must be made to ensure that there has been none†. Finally, in 1997, UK Law changed to require a â€Å"suspicious† attitude. US law is the same now: Mitchell & Moss acted as watchdogs, not bloodhounds, and thus were deficient and negligent. The United States GAAS is now divided into ten standards split into three categories. Mitchell & Moss clearly were adequately trained and proficient, independent and used professional care (AICPA). But where Mitchell and Moss failed is