Learning Objectives LO6 Explain the auditing standards related to external, internal, and governmental auditors’ responsibilities to detect and report frauds, errors, irregularities, and illegal acts. LO7 Describe ways and means to prevent frauds. LO8 Explain the use of extended audit procedures for detecting fraud. LO9 Summarize how PAs can assist in prosecuting fraud perpetrators. 1

Extended Procedures  Count the petty cash twice a day.  Investigate suppliers (vendors).  Investigate customers.  Examine endorsements on cancelled cheques.  Add up the accounts receivable subsidiary.  Audit general journal entries.  Match payroll to life and medical insurance deductions.  Match payroll to social insurance numbers.  Match payroll with addresses.  Retrieve customers’ cheques.  Use marked coins and currency. LO8 2

Extended Procedures  Measure deposit log time.  Document examination.  Enquire, ask questions.  Covert surveillance.  Horizontal and vertical analyses.  Net worth analysis.  Expenditure analysis.  Valuation services. LO8 3

After Discovering a Fraud Building a case against a fraudster is a task for trained investigators.  CICA external audit standards for reporting fraud:  Irregularities should be reported to the audit committee.  Little responsibility to report clients’ illegal activities to outside agencies.  Internal Audit Standards:  Internal auditors are required to inform management of suspected wrongdoing. LO8 4