Modaudp Units 6 - 8
Modaudp Units 6 - 8
Modaudp Units 6 - 8
Significant risk
- Risk of misstatement/error in FS
- How to identify:
- Know your client (their bg,
the industry they operate in)
- Know operations
(multinational; has lots of
intangible assets?;
management with bonuses
ASA 240 - FRAUD
Conducted by employees or
Auditor Responsibilities management
Relating to Fraud
Management could override any
internal controls
- Reasonable assurance but not a
guarantee (not everything is Professional skepticism
tested) - Must have questioning mind
- Fraud - Does thsi make sense?
- Intention to mislead or - Evidence appropriate?
deceive
- Fraudulent financial Fraud
reporting - Identify risks of misstatement due
- Stealing to fraud
- Coellect evidence
Responsibility for - REspond appropriately if suspect
prevention/detection of fraud fraud
- Those charged with governance
- Management Talk with management, TCWG
- Board of directors Check unusual/unexpected
- Responsibility of designing relationships
internal controls
Auditor unable to continue
Auditor responsibilities engagement
- REasonable assurance
- Looking for errors and fraud Communications to management and
those charged with governance
Limitations of an audit - Must disclose to auditor any risk
- Might not be able to detect fraud factors
- Management colluding
- Concealment Reporting fraud to an appropriate
authority outside entity
Truth? Does evidence match? - Oil spill; environmental regulatory
body
Consider whether there is potential
opportunity for fraud
Fraud red flags - auditor
responsibilities Sufficient appropriate audit evidence
regarding compliance with provisions of
- Checklist of red flags those laws and regulations generally
- Obligated to investigate if you recognized to have a direct effect
see an
opportunity/incentive/pressure/rat w/ other laws and regulations
ionalization Identify what has a material effect on
- Common approach: work through financial report
checklist of all risks Inspect w/ licensing or regulatory
- List not exhaustive authorities
- Can’t do nothing when it comes
potential risk of fraud Talk with TCWG
- Written representation
- Effects to be considered
Suspect non-compliance
- Understand
PSA 250 - Evaluate effect
- Discuss with appropriate level of
Scope management
- Consider laws and regulations
- Esp. industry specific Criminal
- Thinka bout notifying authorities
Material misstatement if they did not
comply
Links to 315
PSA 330 - Auditor’s
Response to Assessed
Risk Evaluating Operating
effectiveness
Tests of Controls
- Control risk is low or medium
- Test operating effectiveness
- Do the controls owrk? Do they do
what they’re supposed to do?
Tests controls
- Appliedat relevant times during
period? All year?
- Consistency?
- By whom? By what means?
Timing
- Look at evidence
Interim period
- ¾ throughout the year
-