fraud Flashcards
define fraud
an intentional act performed by either an individual or a group of people from management, tcwg, employees or third party which involves an act of deception to obtain an illegal or unjust advantage
two types of misstatements due to fraud
MS due to fraudulent financial reporting
MS due to missappropriation of assets like cash or inventory
management responsibility for fraud
detection and prevention of fraud is resp of mgmnt and TCWG
-it is up to management to create a strong control environment and a culture of honesty
auditor responsibility in respect of fraud
auditor has to obtain reasonable assurance that FS are free from fraud and misstatement
-identify and assess fraud risks
-obtain SAE
-respond appropriately to fraud identified
audit approach
-discuss fraud susceptibility
-professional skepticim
-inquire management of their assessment of likelihood of fraud and their process
-understand their process and see how it is communicated to TCWG and employees
-enquire about any actual fraud
-also understand how TCWG provide oversight
-any internal controls
what are some fraud risk factors
-incentive (motive)
-opportunity
-attitude (dishonesty)
opportunities for fraud
significant RP transactions
significant estimates
low concentration of power
complex or unstable organisational structure
deficient internal controls
how does auditor determine responses to fraud risks?
-consider assignment and supervision of personnel
-consider selection and application of accounting policies used by the entity
-be unpredictable in timing, extent of audit procedures
also consider:
business rationale for huge transactions
accounting estimates
JE adjustments
audit procedures responsive to management override of controls
audit procedures when misstatements are discovered
-evaluate the evidence to ensure its consistent and achieves the aim of answering the risk of fraud
(analytical procedures)
-obtain written rep from management that they accept responsibility in respect of fraud and have disclosed everything to the auditors (however, these may not be reliable)
also document:
-significant decisions after team discussion
-identified and assessed risks of MM
-overall responses to assesed risks
-results of specific audit tests
-any communications with management
communication responsibilities when fraud is discovered
-communicate to appt level of management as soon as practicable
-fraud should be communicated to TCWG if it involves management, employees with significant roles, others if fraud results in risk of material misstatements
-also report to management and TCWG deficiencies in internal controls to PnD fraud
-statutory duty to report fraud to regulators may arise. in this case consider professional duty of confidence. in any case, take legal advice
implications on audit report of fraud
insufficient or inappropriate evidence: qualified or disclaimer
uncorrected fraud leading to MMS:
qualified or adverse opinion
when to consider withdrawal from engagement
-if exceptional circumstances arise with regard to fraud
-discuss reason with management, tcwg, maybe report to regulators
remember confidentiality and tipping off issues
Current Role of Auditors
Prevention:
-Evaluate internal controls
-Assess financial reporting risks
-Recommend system improvements
Detecting Errors and Fraud
-Perform transaction tests and review documentation
-Use analytical procedures for pattern identification
-Apply forensic techniques in suspected fraud cases
Reporting Errors and Fraud
-Issue detailed audit reports
-Communicate findings and recommendations to management
-Ensure compliance with regulations and report issues to regulators
future role of auditors
-Enhanced Technology Integration
Utilize data analytics, AI, and machine learning
Apply blockchain for real-time auditing
Focus on Cybersecurity
-Assess and mitigate cyber risks
Support incident response and data protection
-Regulatory Changes and Standards
Adapt to evolving accounting and auditing standards
Meet increased regulatory scrutiny
-Enhanced Professional Skills
Develop interdisciplinary expertise (IT, data science, forensic skills)
Understand behavioral risks and ethics
Increased Transparency and Accountability
-Provide more detailed and accessible audit findings
Engage more with stakeholders and the public
