week 1: assurance, fraud and governance Flashcards
who is responsible for the preparation of financial statements
management of the entity
what are the responsibilities of the management?
- maintain and implementing internal controls
- preparation of the FS
why do we need audits?
- agency theory
- information risk
why are there issues with agency?
- independence
- trust
why is there information risk?
- technical competence
- distance
who is PRIMARILY responsible for preventing fraud?
management and the board
(internal auditor is to limit risk of fraud through recommendation of controls)
importance of governance to audit
good corporate governance = less risky because they is
1. independent, competent and ethical board
2. robust internal control systems
resulting in a company that is less susceptible to financial manipulations
role of the audit committee
provide oversight of the internal and external audit function, preparing FS
different nature of engagements
- audit/assurance
- review
- agreed upon procedures
information about audit/assurance
- complete scope of work done
- reasonable assurance
- true and fair, with no material misstatements
- provide assurance on assertion(s)
- financial statement audit
information about review
- limited scope of work done
- moderate/limited assurance and conforms with applicable FR framework
- no evidence that it is not true and fair
- negative assurance on assertion(s)
- quarterly reporting or as-per-need reviews
information about agreed upon procedures (AUP)
- specific procedures to be performed
- no assurance
- no judgement necessary (according to agreed upon criteria)
- factual findings of procedures
- renewal of grants
limitations of an external audit on fraud detection
nature of audit: sampling
- unavoidable risk that some material misstatements of the FS may not be detected
- MM from fraud harder to detect than MM from error
- MM from mgmt harder to detect that MM from employee
fraud risk response to mgmt override of controls
select journal entries:
- complex
- end of reporting period
- unusual txns
- IC overridden
review accounting estimates:
- evaluate mgmt judgement for possible bias
- perform retrospective review of significant mgmt judgements
introduce unpredictability:
- use diff sampling technique
- increase sample size
fraud assessment review
- carry out final analytical review
- reevaluate misstatement found
- obtain mgmt representation letter
- communicate with mgmt
