Chapter 2 Conflict of interest

SEC guiding principles not in book Independence in fact Independence in appearance Auditors are not independent if relationships –Create mutual or conflicting interests with client –Audit their own work –Act as management or employee of the client –Be an advocate for the client

Fraud Triangle Perceived Pressure Perceived Opportunity Ability to Rationalize This layout is similar to Appendix 1 in ISA 240

a bit of a switch to Internal Control Remember the COSO elements of Internal Control Remember the Control Procedures

COSO components of internal controls 1.Control environmentControl environment 2.Risk assessment 3.Control proceduresControl activities 4.Information & communicationAccounting function 5.Monitoring

3. Control Procedures Adequate segregation of duties Proper authorization of transactions & activities Adequate documents & records Physical controls over assets & records Independent checks on performance segregation of duties system of authorization independent checks the Albrecht book physical safeguards documents & records

Segregation of Duties Must separate Custody of Assets Authorization of Transactions Record-Keeping

a bit of a switch to Internal Control Perceived Pressure Perceived Opportunity – COSO internal control framework Control Environment Risk Assessment Control Activities (Procedures) Accounting Function (info & communicate) Monitoring Ability to Rationalize This layout is similar to Appendix 1 in ISA 240

a bit of a switch to Internal Control Perceived Pressure Perceived Opportunity – COSO internal control framework Control Environment Risk Assessment Control Activities (Procedures) segregation of duties system of authorization independent checks physical safeguards documents & records Accounting Function (info & communicate) Monitoring Ability to Rationalize

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