Fraud is a major problem. It is estimated that fraud costs American business approximately 7% of every revenue dollar. Fraudulent financial reporting has robbed the business community and accounting profession of much of its credibility. Users simply expect more; they expect auditors to detect and report material fraud. If auditors fail to detect and report fraud, there will continue to be an â€œexpectations gapâ€ between userâ€™s expectations and auditorâ€™s performance. The profession has to narrow this gap if it is going to remain viable and valued by the third parties that it is supposed to protect. This chapter presents an overview of various types of fraud; describes some of the major frauds; identifies fraud risk indicators; and identifies audit procedures that are effective in discovering most frauds. The concepts developed here are applied to major fraud cases of the past decade. However, all the procedures in the world will not be effective if the auditor does not exercise professional skepticism and approach an audit with an attitude that fraud could be occurring.
Describe the magnitude of frauds that have occurred in organizations during the past decade and the effect of the frauds on the economy. Please describe in a paragraph.