Re-engineering Procedures of Financial Statement Audit and Risk of Material Misstatement Formed by Fraud

Audit of financial statements shall be performed in accordance with International Standards on Auditing (ISA), issued by the International Auditing and Assurance Standards Board (IAASB). Auditors should obtain a reasonable assurance that financial statements do not contain any material misstatement caused either by a fraud, or by an error. In other words, audit procedures are designed to detect only material misstatement, and thus auditors might not be able to detect all fraud even if they apply reasonable procedures when determining if fraud was committed. Audit procedures would be designed to make optimal use of today's technology in order to enable auditors to provide the most effective service. This will involve how data science and related technology can extend auditing theory to associate new approaches. It is the technological elements that can provide opportunities for improving audit effectiveness and efficiency, too. The main objective of this article is to illustrate and summarise the reasons why auditors of financial statements can be expected to detect only a very small percentage of fraud as well as to describe what future reporting and auditing systems might look like. It is also important to know how technology could be used in order to transform auditing procedures.