AU-C Section 240 Consideration of fraud in a financial statement

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Presentation transcript:

AU-C Section 240 Consideration of fraud in a financial statement Roy W. Henderson, Jr., CPA 205-982-0992 rhenderson@hendersoncpa.com

Characteristics of Fraud • Misstatements arise from either fraud or error. • Two types of intentional fraud: misstatements from fraudulent financial reporting and misstatements resulting from misappropriation of assets.

Responsibilities of the Auditor • Responsible for obtaining reasonable assurance. • Determine whether misstatements in judgement areas are caused by fraud or error. • Detect misstatements resulting from management fraud. • Maintain professional skepticism throughout the audit.

Objectives Obtain sufficient appropriate audit evidence. • Identify and assess the risks of material misstatement of financial statements. Obtain sufficient appropriate audit evidence. Respond appropriately to fraud or suspected fraud.

Requirements Discussion among the key engagement team members. • Maintain professional skepticism throughout the audit. Discussion among the key engagement team members.

The discussion should address: Known external and internal factors, Risk of management override of controls, Consideration of manipulation of other financial measures, Importance of maintaining professional skepticism, and How the auditor might respond to susceptibility.

Risk Assessment Procedures Discussion with management and others within the entity. Obtain understanding of those charged with governance. Evaluate whether there are unusual or unexpected relationships.

Identification and Assessment of Risk Auditors risk assessment should be ongoing throughout the audit. Evaluate which types of revenue transactions rise to risk. Obtain an understanding of the entity’s related control activities relevant to risk.

Evaluation of Audit Evidence • Determine with trends and relationships indicated a risk of material misstatement. • Numerous misstatements at a specific location indicate a risk of fraud.

Auditor Unable to Continue the Engagement • Auditor does not take appropriate action regarding fraud. Results indicate a significant risk of material and pervasive fraud. Auditor has concern about competence or integrity of management.

Communication of Results Auditor must present findings to appropriate level of management. Communicate with those charged with governance when aware of fraud. May obtain legal advice if integrity of honesty of management is questionable. May report fraud to a party outside of client entity.

CONSIDERATION OF FRAUD IN A GOVERNMENT STANDARDS AUDIT In addition to the AICPA requirements concerning fraud and noncompliance with provisions of laws and regulations, when performing a GAGAS financial audit, auditors should extend the AICPA requirements pertaining to the auditors’ responsibilities for laws and regulations to also apply to consideration of compliance with provisions of contracts or grant agreements. This Photo by Unknown Author is licensed under CC BY-SA