What is management's responsibility regarding fraud?

The responsibility of management regarding fraud primarily lies in preventing and detecting it. Management is tasked with establishing a robust internal control system that helps mitigate the risk of fraud. This includes implementing policies and procedures that promote ethical behavior, regularly assessing the effectiveness of internal controls, and ensuring proper segregation of duties within the organization.

Furthermore, management must foster a culture of honesty and transparency to deter fraudulent activities. By taking proactive measures to prevent fraud, management demonstrates its commitment to maintaining the integrity of the financial reporting process. Additionally, it is important to acknowledge that while auditors play a crucial role in assessing and providing assurances on the financial statements, they rely on management's systems for oversight and control in preventing fraudulent activities.

Consequently, the focus of management’s responsibility is firmly centered on the active prevention and detection of fraud rather than simply identifying financial misstatements, which is part of the auditor's role, or conducting the audit itself, which is solely the responsibility of the auditor.