chap 10 responsibilities when fraud is suspected and documenting the fraud assessment Flashcards
risk of fraud is oten high for accounts that are based on what?
managments subjective estimation
what 7 matters do auditing standards required the auditors to document in relation to the auditors consideration of material misstatments due to fraud?
- significant decisions made during discussion among the engagement team in planning the audit about the susceptibility of the entitys FSs to material fraud, including how and when the discussion occurred and who participated 2. procedures performed to obtain info necessary to identify and assess the risks of material fraud 3. specific risks of material fraud that were identified at both the overall FS level and the assertion level and a description of the auditors responses to those risks 4. reasons supporting a conclusion that there is not a significant risk of material imporoper revenue recognition 5. other conditions and analytical relationships indicating that additional auditing procedures or other responses were required, and the actions taken by the auditor in response 6. results of the procedures performed to address the risk of managment override of controls 7. the nature of communications about fraud made to management, the audit committee , or others
software tols can be used to search for fictitious revenue transactions by searching for what 2 things?
- duplicate sales invoice numbers 2. reconciling databases of sales invoices to databases of shipp[ing records to ensure all sales are supported by evidence of shipping
T/F auditors may expand other substantive procedures to address hieghted risks of fraud
T
if fraud by senior management is a material weakness, the auditors report on internal control over financial reporting with contain what kind of opinion
adverse
T/F auditing standards require the auditor to consider the implications of things that may not be significant to the auditor for other aspects of the audit
T
what is assessment inquiry?
used to corroborate or contradict prior info.
which kind of inquiry is used to obtain info about facts and details that the auditor does not have , usually about past or current events or processes?
informational inquiry
what is informational inquiry?
used to obtain info about facts and details that the auditor does not have , usually about past or current events or processes
auditors often use informational inquiry when gathering follow up evidence about what?(2)
- programs and controls 2. other evidence involving a misstatement or suspected fraud uncovered during the audit
what kind of inquiry is often used to determine if the individual is being deceptive or purposefully omitting disclosure of key knowledge of facts, events, or circumstances
interrogative inquiry
PCAOB auditing standards state that fraud of any magnitude by who may have importanct implications for the auditors opinion on internal control over fianncial reporting ?
senior managment
auditors can most effectively use infomational inquiry by posing whatkind of questions?
open ended questions about details of events, processes, or circumstances
what are 2 problems with an auditor disclosing the possible fraud to parties other than senior management and its audit committee?
`1. it is prevented by the auditors professional code of conduct 2. it may violate legal obligations of confidentiality
T/F the disclosure of possible fraud to parties other than the clients senior management and its audit committee is part of the auditors responsibility
F not ordinarily
external auditors detect a small % of frauds but are more likely to do so when ?
it materially affects the FSs
who does the auditor need to speak to if she believes that senior managment may be involved in the fraud?
the audit committeed
interviewing allows the auditor to do what3 things>
- clarify unobservable issues 2. observe the respondents verbal and nonverbal responses 3. identify issues omitted from the documentation or confirmations
auditors often use what 2 kinds of audit software to determine whether fraud may exist
- ACL 2. IDEA
the auditor often starts assessment inquiry with what kind of questions?
broad, open ended questions that allow the interviewee to provide detailed responses that can later be followed up with more specific questions
what kind of inquiry is used to corroborate or contradict prior info.?
assessment inquiry
when fraud is suspected, the auditor gathers additional info to
determine whether fraud actually exists
the auditor should stay attentive by doing what 3 things?
- maintaining eye contact 2. nodding in agreement 3. demonstrating other signs of comprehension
when it is determined that fraud may be present, the auditor is required to discuss the matter and audit approach for further investigation with who?
the level of managment that is at least one level above those involved as well as senior managment and the audit committee
the key to oberving behavioral cues is to identify when the individuals behavior begins to what?
change from her normal behavior
when auditing the FSs of a public company, the auditor should consider what deficiences when auditing internal controls over financial reporting?
deficiences in managments antifraud programs and controls that fail to mitigate the risk of fraud in the FSs
interrogative interviewing should tyupically be done by who from the audit team?
senior members who are experienced and knowledgeable about the clients affairs
if the results of the auditors procedures indicate a significant risk of material misstatment due to fraud, the auditor should consider what?
withdrawing from the engagement
what 2 things strenthen the auditors inquiry techniques and helps her apply professional skepticism?
- good listening techniques 2. observation of behavioral clues
when using interogative inquiry, the auditor often asks what kind of questions?
specific directed questions that see either a yes or no response
what are 3 categories of inquiry?
- informational 2. assessment 3. interrogative
for inquiry to be effective, the auditor needs to be skilled at what? (2)
- listening 2. evaluating responses to questions
why is it important for the autiro to be skilled at listening and evaluating responses to questions?
the interviewees initial response will typically omit useful info so effective follow up questions are needed and often lead to better info to assess whether fraud exists
what is interrogative inquiry?
often used to determine if the individual is being deceptive or purposefully omitting disclosure of key knowledge of facts, events, or circumstances
auditors use basic spreadsheet tools like excel to do what?
perform analytical procedures at disaggregated levels
auditors should attempt to avoid what about the info being provided?
preconceived ideas
withdrawing from the engagment because of significant risk of material misstatment due to fraud may depend on what 2 things?
- managments integrity 2. the diligence and cooperation of manaqgment and the Board in investigating the potential fraud and taking appropriate action
auditors in response to heightened risks that management used inappropriate assumptions to estimate account balances may do what?
use specialist to assist in evaluating the accuracy and reasonableness of key assumptions
when gathering additional info to determine whether fraud exists, the audit often begins by doing what?
making additional inquires of managment and others
it is critical for the auditor to use effective listening skills throughout the inquiry process to maintain a what?
questioning mindset
frauds are often detected in what 4 ways from most to least?
- tip 2. management review 3. internal audit 4. by accident
one common use of assessment inquiry is to corroborate management responses to earlier inquires by doing what?
asking questions of other employees
good listeners take advantage of silence to do what 2 things?
- think about the info provided 2. prioritize and review info heard
