The standard of care and responsibility required of auditors in the detection of fraudulent or illegal activity : the AWA case

The auditor's role in the detection of fraudulent or illegal activities has posed a continuing dilemma. In the 1980's, a lengthy period of large profits made by Bond, Skase and others, was followed by corporate collapses and subsequent findings of significant losses. Recently, the large corporate collapses of HIH, Enron and Worldcom have again posed the question 'where were the auditors'? The auditor's failure to detect major weaknesses, fraud or illegal activities in the failed corporations has led to a widening of the audit expectation gap. This is the gap that exists between what auditors see as their role and what the financial commumity expects. Damaging publicity arising from subsequent litigation where auditors are found negligent focuses further attention on this problem. This research examines the AWA case. In AWA, the audit firm of Deloittes was faced with a combination of factors