Module III - Readings Flashcards
According to AU Sec. 316, what do you need to do in consideration of fraud in a F/S audit?
(1) Exercise professional skepticism (when considering the possibility that a material misstatement due to fraud could be present)
(2) Respond to fraud risk (nature, timing, extent of audit procedures in response to fraudulent fin. reporting, misappropriation of assets, management override of internal controls)
(3) Communicate about fraud to management, the audit committee, and others
(4) Document auditor’s consideration of fraud
According to AU Sec. 316, whose responsibility is it to design and implement programs and controls to prevent, deter, and detect fraud?
Management
According to AU Sec. 316, do auditors make legal determinations of whether fraud has occurred?
- No
- Auditor’s interest specifically relates to acts that result in material misstatement of F/S
According to AU Sec. 316, what distinguishes fraud from error?
Whether the underlying action that results in the misstatement of the F/S is intentional (fraud) or unintentional (error)
According to AU Sec. 316, what two types of misstatements are relevant to the auditor’s consideration of fraud?
Misstatements arising from:
(1) Fraudulent financial reporting
(2) Misappropriation of assets
According to AU Sec. 316, what is fraudulent financial reporting?
Intentional misstatements or omissions of amounts or disclosures in F/S designed to deceive F/S users where the effect causes the F/S not to be presented, in all material respects, in conformity with GAAP
According to AU Sec. 316, what are three ways fraudulent financial reporting may be accomplished?
- Manipulation, falsification, or alteration of accounting records or supporting documents from which F/S are prepared
- Intentional misapplication of accounting principles relating to amounts, classification, manner of presentation, or disclosure
- Misrepresentation in or intentional omission from the F/S of events, transactions, or other significant information
