An error is caused by unintentional financial statement misstatement while fraud is derived from intentional and deliberate cover up of the material facts (Kan, 2013). The senior management of Diamond was aware of the misstatements and deliberately concealed the financial misstatements to the lower managerial cadre and the independent auditing firm. Consequently, the financial misstatements experienced in the financial statements of Diamond Corporation were intentionally contributed by the senior management to influence the stock price of the firm shares that reflects it is a fraud action. Requirement 7 One of the generally accepted auditing standards that Deloitte auditing firm failed in auditing the financial results of Diamond in year 2011 and 2012 is exercising suitable professional care when undertaking the auditing procedure and preparing the financial report.
Furthermore, the auditor has the obligation to diligently when undertaking the auditing exercise and report misleading financial information identified. The failure by the audit firm to detect misstatements in the financial report of Diamond Corporation implies that the firm failed in exercising it professional duty with care. Furthermore, the audit firm failed to inform the public of mysterious and misleading information reflected in the financial report prepared by Diamond internal accountant.
Similarly, financial auditors are under obligation to gather sufficient information of an organization and it environment before undertaking an audit. The inability of Deloitte audit firm to identify misstatement due to the payment procedure Diamond Corporation applies in paying the growers reflects the auditing firm failed in observing the GAAS that auditing firm should have sufficient information surrounding an organization. In addition, the GAAS requires auditors to review its internal control in order to assess risks of material misstatement due to fraud or error and design timing, extent and nature of auditing procedures in future.
Thus, the inadequacy capacity of Deloitte audit firm in auditing the financial statements of Diamond Corporation of material misstatement risk demonstrates the fieldwork standards of GAAS were not followed. Another GAAS that Deloitte failed to observe in auditing the financial reports of Diamond is determining informative disclosures that are not reasonably satisfactory and state the findings in the audit report. Diamond Corporation provided inadequate information on its payment schedule utilized in acquiring the inventory from the farmers.
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