Question

Is “proper” disclosure enough to prevent fraud?

Answer 1

"Proper" disclosure means everything is stated in a true and fair manner i.e. all the financial details are shown the way they are without any alterations and also without hiding any fact or transaction.

Proper disclosure means everything is fully and completely disclosed in the financial statements. Proper disclosure certainly helps in fraud prevention because when the entity follows strict standards for disclosure, then the chances of the fraud being detected improves. Hence, the individual thinks twice before committing the fraud.

But, at the same time, proper disclosure can't be used as an assurance that there will be no fraund at all. Only ensuring proper disclosure isn't enough for fraud prevention. There must be continuous examination of the activities in the entity by the internal as well as the external auditor to ensure no fraud is being committed.