Fraud: Evaluation and Communication

Question 1

Who should be informed when the auditor has identified fraud, but that fraud is not material and does not involve senior management?

Answer 1

The appropriate level of management should be notified (defined to be at least one level above the level where the fraud occurred).

Question 2

When might an auditor have a duty to inform others outside of the audited entity of fraud-related matters?

Answer 2

1. )In response to a valid subpoena
2. )To comply with applicable legal and regulatory requirements
3. )To respond appropriately to successor auditor’s inquiries when the former client has given permission to the predecessor
4. )To report fraud to the applicable funding agency under the requirements of government auditing standards

Question 3

What are the auditor’s responsibilities to communicate fraud identified by the auditor?

Answer 3

1. )If the fraud is not material, the auditor should inform the appropriate level of management.
2. )If the fraud is material (or if senior management is involved, even if the fraud is not material), the auditor should inform those charged with governance.

Question 4

What is the required form of the auditor’s communications about fraud-related issues?

Answer 4

Communications may be either written or oral but should be timely.

Question 5

Who should be informed when material fraud has occurred (whether senior management is involved in the fraud or not).

Answer 5

The auditor should inform those charged with governance.