Advanced Auditing.

Advanced Auditing

COACHING CLASSES ACCA F8 & P7 PIPFA FINAL AUDITING. 0322-3385752
JOIN KHALID AZIZ COACHING CLASSES ACCA F8 & P7 PIPFA FINAL AUDITING.

JOIN KHALID AZIZ ICMAP STAGE 1, 2 & 3 COACHING CLASSES.
FUNDAMENTALS OF FA & ECONOMICS. COST ACCOUNTING FA & APPRAISAL

JOIN KHALID AZIZ B.COM COACHING CLASSES.
ACCOUNTING, ADVANCED ACCOUNTING, STATISTICS, ECONOMICS & INCOME TAX LAW.

Topics for discussion today
Preliminary engagement activities Planning process Overview Risk and materiality Audit strategy & audit plan Going concern & factual insolvency Subsequent Events Fraud, AP Act (if time available) Reporting (if time available) March 2010 Advanced Auditing Lecture 1

Preliminary Engagement Activities
References: ISA 220 – Quality Control for Audits ISQC 1 – Quality Control for Firms ISA 210 – Agreeing the terms of audit engagements Objectives of Preliminary Engagement Activities Related to client the acceptability of a new client OR Consider the ability to continue as auditors for existing clients Provision of a quality audit Regulatory and ethical considerations 19 February 2009 Advanced Auditing

Why perform Preliminary Engagement Activities ? Limitation of auditor’s risks by not accepting unsatisfactory clients Firm’s professional reputation could suffer Negative publicity (lawsuits; client failures) Types of risks faced by auditor Legal liability Against the firm because of company failures (= audit failures) Reputational damage Because of being associated with a particular client 19 February 2009 Advanced Auditing

Step 1: Perform a Client Investigation Consider: Independence of Auditor Overriding requirement of a statutory audit Threats to independence IFAC Code of Ethics Consider: Integrity of Client Matters to consider include Business reputation of owners and management Nature of operations Attitude of management regarding interpretation of accounting standards 19 February 2009 Advanced Auditing

Step 1: Perform a Client Investigation Consider: Integrity of Client Matters to consider include Attitude towards keeping audit fee as low as possible Indications of limitations of scope of audit work Illegal activities of client Reasons for non-reappointment of previous auditor Consider: Changes to Existing Client Refer above 19 February 2009 Advanced Auditing

Step 1: Perform a Client Investigation Consider: Communication with previous auditor In terms of IFAC Code of Ethics Informed of intention to replace? Permission to discuss client? Has client’s permission been obtained to discuss client? No? Consider: financial responsibility of client Ability and willingness to pay audit fee? Consider: legal procedures in respect of the engagement Does a vacancy exist? 19 February 2009 Advanced Auditing

Step 2: Determine the auditor’s skills and competence requirements Does the firm has the necessary capabilities, competencies, time, and resources? Considerations Knowledge of industry Experience of relevant regulatory or reporting requirements (or able to obtain such skills) Sufficient personnel with required skills and competencies Experts available (if needed) Able to meet the audit deadline 19 February 2009 Advanced Auditing

Step 3: Establish the terms of engagement Confirmation of relationship Contractual relationship Removal of any misunderstanding Copy of letter to be filed in working papers Reference: ISA 210 – Engagement Letters Refer to Appendix 1 for example of an engagement letter 19 February 2009 Advanced Auditing

Planning: An Overview Obtaining an understanding of the entity, including internal controls  Assessing the risk of material misstatement in the financial statements  Determining materiality  Establishing the overall audit strategy & Developing the audit plan March 2010 Advanced Auditing Lecture 1

Audit Risk and Materiality
AUDITING NOTES: Chapter 7. Important Elements of the Audit Process- Concept of Materiality and Audit Risk. SAICA HANDBOOK: ISA 240: The Auditor’s responsibilities relating to fraud in an audit of financial statements. ISA 315: Identifying and assessing the risks of material misstatement through understanding the entity and its environment. ISA 320: Materiality in planning and performing an audit. ISA 330: The Auditor’s responses to assessed risks. ISA 450: Evaluation of misstatements identified during the audit ISA 510: Initial audit engagements – opening balances. ISA 520: Analytical Procedures. 11 Feb 2010 Advanced Auditing

Audit Risk : the auditor’s objective
Identify and assess risks of material misstatement High, Medium, Low Risk may be due to FRAUD (ISA 240) or ERROR 2 Levels of risk Financial Statement level AND Assertion level How? By obtaining an understanding of entity and its environment, including internal control Why? Provides a basis for designing and implementing responses to assessed risks of material misstatement 11 Feb 2010 Advanced Auditing

Audit Risk Definition of Audit Risk Risk-based auditing
The risk that the auditor expresses an inappropriate audit opinion when the annual financial statements are materially misstated Audit Risk is a function of the risks of material misstatement (IR & CR), and Detection Risk (Ref: Glossary of Terms) Risk-based auditing 11 Feb 2010 Advanced Auditing

ISA 315 Identification of risks Assessing identified risks
Obtaining an understanding of the entity and its environment, including Internal Control Assessing identified risks Evaluating whether the risks relate more pervasively to the AFS as a whole Relating the risks to what can go wrong at the assertion level Considering the likelihood of misstatement, and possible magnitude of the misstatement 11 Feb 2010 Advanced Auditing

ISA 315 Significant Audit Risks Risk of fraud
Risk related to significant economic, accounting, or other developments that require specific attention Complex transactions Significant transactions with related parties Degree of subjectivity Transactions outside normal course of business for entity 11 Feb 2010 Advanced Auditing

ISA 315 Where auditor revises assessment of Audit Risk
Where assessment changes during the audit Revision of assessment Modification of audit procedures Documentation required Discussions between audit team Key elements of understanding Identified risks FS level Assertion level 11 Feb 2010 Advanced Auditing

ISA 315 The link between ISA 315 and Audit Risk?
A failure to identify factors that may give rise to the risk of material misstatement (and a failure to respond to such risks) Increase in audit risk Failure to understand The entity and its environment The accounting system and internal control systems 11 Feb 2010 Advanced Auditing

The Client Risks “Inherent Risk”
Built-in risk that exists before internal controls are put in place!!! Risks related to specific type of industry and type of client Develop assessment by gaining understanding of entity and its environment (A17 – A41) Industry, regulatory and external factors Nature of entity Objectives and strategies, and related business risks Financial performance of entity 11 Feb 2010 Advanced Auditing

The Client Risks “Control Risk” A66 A67
Evaluation of design of control involves considering whether control is capable of effectively preventing, or detecting and correcting, material misstatements. Implementation of a control means that the entity is using it No point in testing a control if it is not designed properly A67 Risk assessment procedures Enquiry of personnel Observing the applicable controls Inspecting reports and documentation Tracing transactions i.e. Walk-through 11 Feb 2010 Advanced Auditing

The Client Risks Control risk Control activities
Control environment – NB!!! E.g. Management override The entity’s risk assessment process The information system Monitoring of internal controls Essential to evaluate the effect of the identified weaknesses (in system) on the financial statement assertions 11 Feb 2010 Advanced Auditing

The Auditor’s Risk Detection risk
Risk that the auditor will not detect a misstatement that exists and could be material Risk that is inherent in the client’s operations and IS NOT addressed by the client’s control system Detection risk is a function of the effectiveness of the auditor’s audit procedures 11 Feb 2010 Advanced Auditing

The Auditor’s Risk Detection risk Detection risk may arise because
Inappropriate audit procedure Misapplication of a procedure Misinterpretation of the results of a procedure There is an INVERSE relationship between risk of material misstatement [IR & CR] and Detection Risk 11 Feb 2010 Advanced Auditing

Assessing risk at two levels
At financial statement level Will potentially affect many assertions Factors that may affect audit risk at the financial statement level Management's integrity Manipulation of AFS to meet their own needs Management’s experience and knowledge Errors in AFS Pressure on management Many business failures in industry Need to raise loans 11 Feb 2010 Advanced Auditing

At financial statement level Factors that may affect audit risk at the financial statement level (cont.) Nature of entity’s business Factors affecting the industry (→ going concern problems) Economic conditions Consumer demand for company’s products Need to consider how these factors will impact on the AFS 11 Feb 2010 Advanced Auditing

At financial statement level – responding to risks Assigning staff with appropriate skills and experience More supervision of staff Professional scepticism Elements of unpredictability in selecting items to test, and in the performance of the work Adjustment of nature, timing, and extent of audit procedures → more substantive in nature Use of experts (complex & judgmental areas) 11 Feb 2010 Advanced Auditing

At financial statement level – responding to risks Going concern risks → more discussions with management, audit committee Focusing procedures on high risk areas Consideration of whether to continue with the audit 11 Feb 2010 Advanced Auditing

At assertion level Risk at financial statement level “trickles” down, and becomes risk at the assertion level E.g. Poor management integrity Factors that may affect audit risk at the assertion level Susceptibility of an account to misstatement Complexity of transactions Degree of judgement involved Susceptibility of assets to loss or misappropriation Complex and unusual transactions (at year-end) Transactions not subjected to routine processing 11 Feb 2010 Advanced Auditing

Audit Risk Events and conditions that may indicate risks of material misstatement Appendix 2 of ISA 315 Do NOT learn “off by heart” Understand and be able to identify in a question Know how to respond to the identified risk 11 Feb 2010 Advanced Auditing

ISA 330 – Auditor’s responses to risks
Design and performance of further audit procedures to obtain sufficient, appropriate audit evidence Nature, timing and extent of further procedures are based on, and are responsive to the assessed risks of material misstatement at assertion level Tests of controls Substantive procedures (AR, Tests of Detail) Ref: ISA 330 Application and Other Explanatory Material 11 Feb 2010 Advanced Auditing

ISA 330 – Auditor’s responses to risks
Evaluating the sufficiency and appropriateness of the audit evidence gathered Based on audit procedures performed, and evidence gathered Need to conclude on whether assessments of risk of material misstatement at assertion level remain appropriate Does the evidence corroborate or contradict the assertions in the AFS 11 Feb 2010 Advanced Auditing

Risk of Material Misstatement: Fraud
Misstatement of AFS is INTENTIONAL Responsibility for prevention and detection of fraud Lies with management and those charged with governance Commitment to culture of honesty Consider potential for override of controls Responsibility of auditor To obtain reasonable assurance that AFS are free of material misstatement – through error or fraud 11 Feb 2010 Advanced Auditing

Ability of auditor to detect fraud depends on factors such as Skill of perpetrator Frequency and extent of manipulation Degree of collusion Size of amounts Seniority of those involved More difficult to detect management fraud 11 Feb 2010 Advanced Auditing

JOIN KHALID AZIZ COACHING CLASSES ICMAP STAGE 1,2,3,4..& CAM
ICAP MODULE A,B,C,D PIPFA MA-ECONOMICS B.COM, BBA & MBA BA-ECONOMICS INTER COMMERCE R1173, ALNOOR SOCIETY BLOCK 19, F.B.AREA, KARACHI.

Auditor’s requirements Professional scepticism Irrespective of past experience with client Discussion with audit team Risk assessment procedures 11 Feb 2010 Advanced Auditing

Materiality References Audit report
ISA 320 – Materiality in Planning and Performing an Audit ISA Evaluation of Misstatements Identified During an Audit Audit report Auditor’s opinion on whether or not the AFS are materially misstated AFS will contain a margin of uncertainty Where misstatement > acceptable margin of uncertainty Affects user’s decisions based on AFS Misstatement becomes MATERIAL 11 Feb 2010 Advanced Auditing

Materiality The nature of materiality It is subjective It is relative
Professional judgement is required It is relative E.g. Coca Cola vs. the corner cafe The balance sheet vs. the income statement It is qualitative and quantitative Qualitative Where an amount > amount set as material Quantitative Judged against a factor other than an amount E.g. Important disclosure that is omitted 11 Feb 2010 Advanced Auditing

Setting of materiality
Auditor must consider and set materiality during the Planning stage of the audit Planning Stage Assess the risk of materiality misstatement AND consider planning materiality Formulate an audit plan Nature, timing, and extent of audit procedures 11 Feb 2010 Advanced Auditing

Planning Materiality The relationship between planning materiality and audit risk Inverse relationship Higher audit risk Set materiality lower in order to compensate for this Lower audit risk Set materiality higher Chance of material misstatement going undetected is lower Inverse relationship between audit risk and materiality Impact on nature, timing and extent of audit procedures The risk of material misstatement will have a direct impact on setting of planning materiality levels 11 Feb 2010 Advanced Auditing

Planning Materiality It is a benchmark against which to measure quantitative misstatements Considerations Amount of misstatement Quantitative Nature of misstatement Qualitative 2 Levels at which materiality is considered Overall level Individual level 11 Feb 2010 Advanced Auditing

Planning materiality Exam technique – when calculating materiality
Stability of indicators – which figures to use Budget or actual Budgeted figures – will these figures be achieved? Un-audited figures of current year – whole year’s figures? Prior year audited figures Balance sheet or Income Statement Consider the nature of the business Which would be most appropriate ? Look at “activity” on B/S and I/S. Who are the users? Would they use the I/S or the B/S mostly? 11 Feb 2010 Advanced Auditing

Planning materiality Exam technique – when calculating materiality
Calculation E.g. use of DP6 Conclusion Do not leave materiality in a range – need a number!! Where it is a high risk audit – be conservative Examples Incentive to overstate assets and understate liabilities Possible Going Concern Risks related to particular assets, liabilities etc Risks related to the accounting system 11 Feb 2010 Advanced Auditing

Planning materiality Quantitative indicators of materiality E.g. DP6
Turnover ½ - 1% Gross profit 1 – 2% Net income 5 – 10% Total assets 1 – 2% Equity 2 – 5% Will calculate upper and lower limits of materiality Using lower limit  more conservative level of materiality  detection of more errors 11 Feb 2010 Advanced Auditing

Planning materiality Qualitative indicators of materiality
Consider when quantifying materiality Examples include Control environment Effectiveness of internal controls Integrity of management Appropriateness of accounting policies and the disclosure thereof Statutory requirements and regulations Problems and errors – previous years Results of analytical procedures Possibility of illegal transactions 11 Feb 2010 Advanced Auditing

Final Materiality Is established at the end of the audit
Is the standard against which identified misstatements are measured, in order to determine the effect on the AFS Consider responsibilities in terms of reporting responsibilities (ISA 700) Conclusion required by ISA 700 takes into account auditor’s evaluation of unadjusted audit differences on the AFS (ISA 450) 11 Feb 2010 Advanced Auditing

Final Materiality Planning Stage Evaluation of misstatements
Assess the risk of materiality misstatement AND consider planning materiality Formulate an audit plan Nature, timing, and extent of audit procedures Evaluation of misstatements Selected audit procedures are carried out – on samples of the population e.g. debtors, sales, creditors Errors in samples Draw audit conclusions about the populations 11 Feb 2010 Advanced Auditing

Final Materiality Process followed by auditor
Analyse & project sample errors over the population If the projected misstatement is unacceptable Perform further tests OR Client to check population in detail for errors Discuss the misstatements with management  correction of errors Refusal o correct errors  unadjusted differences  use of FINAL MATERIALITY to determine materiality of differences Misstatement is material  more misstatement that acceptable  qualification of audit opinion 11 Feb 2010 Advanced Auditing

Final Materiality Why would the client refuse to correct misstatements
Disagreement over whether is a misstatement E.g. estimate of inventory obsolescence is too low Misstatement not regarded as material I.e. Won’t influence the user Ulterior motives E.g. loan covenant – current ratio required Too much bother to make the changes Not concerned about receiving a qualified opinion 11 Feb 2010 Advanced Auditing

Evaluating Unadjusted Audit Differences
Distinguish between Factual misstatement (known error) Able to substantiate with audit evidence E.g. sales invoices posted in wrong period Judgemental misstatement (likely error) Unable to specifically quantify and substantiate with evidence Level of subjectivity E.g. provision for doubtful debts Projected misstatement I.e. Auditor’s best estimate of misstatement in a population Arises because of use of audit sampling 11 Feb 2010 Advanced Auditing

Considerations Ref: ISA 450 – A16 examples Do not consider differences in isolation Aggregation of differences Trends identified e.g. understatement of provisions  attempt to manipulate AFS? Effect of uncorrected differences related to prior periods Statutory or other contractual obligations Less likely to tolerate E.g. maintaining specific ratios in terms of a loan covenant 11 Feb 2010 Advanced Auditing

Considerations Nature of misstatement Error in principle VS misallocation of expense Difference arising out of dishonesty of director Subjective differences Impact of misstatement Assess impact on “popular” figures and ratios E.g. where difference affects EPS Absolute size and relative size of difference Absolute size e.g. R1,000,000 Size in relation to other account headings 11 Feb 2010 Advanced Auditing

The Overall Audit Strategy
Scope Client-specific issues and circumstances Number of locations / areas to visit Staff availability Travel and housing of audit staff Engagement team specifics Composition, experience, number QC requirements Use of CAATS Budgeting for the audit Audit time per section Audit fees, expenses 19 February 2009 Advanced Auditing

Scope Communication with entity Attending meetings Written reports required (and timing) Communication with third parties Previous audit experience Going concern Applicability of going concern assumption Issues affecting going concern assumption Previous audit findings and recommendations Existence of related parties Use of internal auditors, other auditors, experts 19 February 2009 Advanced Auditing

Timing Client dates e.g. inventory counts, reporting deadlines Timing of audit visits e.g. interim, final audit Reporting dates Direction I.e. areas requiring attention E.g. Debtors 19 February 2009 Advanced Auditing

The Audit Plan Nature Tests of Control (combined approach) vs. Substantive procedures Impact of internal controls on substantive procedures Reliance is justified Nature – more analytical Timing – verification spread over year Extent – Less Reliance is NOT justified Nature – more detailed tests Timing – at year-end Extent – more 19 February 2009 Advanced Auditing

The Audit Plan Timing Extent I.e. when the procedures will be done
Tests of control Performed to cover whole period of reliance Substantive procedures Performed to verify transactions and year-end balances Tight audit deadline Early verification and roll-forward procedures Extent Relates to number of items to be tested Greater reliance – larger sample size Sufficient, appropriate audit evidence 19 February 2009 Advanced Auditing

Going Concern References:
Jackson & Stent Chapter 15 Financial statements are normally presented on the “going concern” basis Operational existence For the foreseeable future No need to liquidate or curtail operations Cash is King March 2010 Advanced Auditing Lecture 1

Going Concern Management’s responsibility Auditor’s responsibility
to assess whether company has ability to continue as a going concern Auditor’s responsibility Risk of expression of unqualified opinion where has been inappropriately applied Need to gather sufficient, appropriate evidence to support adoption (by management) of the going concern assumption March 2010 Advanced Auditing Lecture 1

JOIN KHALID AZIZ COACHING CLASSES ICMAP STAGE 1,2,3,4..& CAM
ICAP MODULE A,B,C,D PIPFA MA-ECONOMICS B.COM, BBA & MBA BA-ECONOMICS INTER COMMERCE R1173, ALNOOR SOCIETY BLOCK 19, F.B.AREA, KARACHI.

The Audit Plan for Going Concern
Consideration of going concern starts at the Planning Stage Nature, timing and extent of procedures is determined by level of risk perceived by auditor Nature of testing Substantive evaluation of directors’ assessment of going concern Procedures Analytical procedures Confirmation of evidence provided Enquiry of personnel March 2010 Advanced Auditing Lecture 1

The Audit Plan for Going Concern
Timing of testing Need most up-to-date information At year-end In post balance-sheet period Extent of testing Determined by “certainty” of company to continue as a going concern March 2010 Advanced Auditing Lecture 1

Going Concern References:
ISA 570 (Explanatory Notes) Framework – events and conditions that cast doubt on ability to continue as a going concern Financial indicators Operating indicators Other indicators March 2010 Advanced Auditing Lecture 1

Going Concern Mitigating factors
Consideration of management’s plans to return to going concern Specific and feasible Assumptions made by management Management’s written representations to commit to plans March 2010 Advanced Auditing Lecture 1

Going Concern Audit conclusions Based on audit evidence gathered
Does a material uncertainty exist regarding entity’s ability to continue as a going concern? Yes  Disclosure in AFS, else AFS don’t fairly present the state of affairs of the company  qualification of audit opinion March 2010 Advanced Auditing Lecture 1

Going Concern – audit opinion
Material uncertainty exists Disclosure made Emphasis of Matter para Inadequate disclosure, or failure to disclose Disagreement  “Except for” or Adverse opinion Going concern is NOT appropriate Adverse opinion Unable to determine appropriate basis Disclaimer of opinion March 2010 Advanced Auditing Lecture 1

Factual Insolvency i.e. Assets < Liabilities All are fairly valued
Matters for auditor’s attention Indicator of going concern problems Irregularities may take place March 2010 Advanced Auditing Lecture 1

Factual Insolvency Irregularities Where company is factually insolvent
Greater risk of Common law fraud Reckless trading (S22 of Co’s Act) If taking place Unlawful Act Rest of requirements for S45 RI? March 2010 Advanced Auditing Lecture 1

Subsequent Events Reference: Types of subsequent events
ISA 560 – Subsequent Events Types of subsequent events Adjusting events Non-adjusting events Dividends Going concern March 2010 Advanced Auditing Lecture 1

Subsequent Events Auditor’s duties Refer to page 17/15
Between date of AFS and auditor’s report Identification of subsequent events Audit of subsequent events Between date of auditor’s report but before AFS are issued After AFS have been issued Refer to page 17/15 March 2010 Advanced Auditing Lecture 1

S45 – Reportable Irregularities
Reportable irregularity An unlawful act or omission committed by Statutes, regulations, common law Any person responsible for the mgt of entity Has, or is likely to, cause financial loss to the entity, its partner, shareholder, creditor, investor OR Is fraudulent or amounts to theft OR Is a material breach of any fiduciary duty owed by the person to entity etc March/April 2009 Advanced Auditing Advanced Auditing

The individual registered accountant Is satisfied or has reason to believe that A reportable irregularity has / is taking place MUST Without delay Send a written report to the IRBA, with particulars MUST notify management within 3 days, and provide management with a copy of the report Within 30 days of sending report to IRBA Discuss report with management » representations March/April 2009 Advanced Auditing Advanced Auditing

Send another report to the IRBA No reportable irregularity has / is taking place OR Suspected RI is no longer taking place, and that steps have been taken to recover losses OR RI is continuing Where RI is continuing Notify appropriate regulator ASAP Details of irregularity In writing Copy of report Regulator may carry out investigations as needed March/April 2009 Advanced Auditing Advanced Auditing

Fraud – Introduction Primary responsibility for prevention and detection of fraud (and error) rests with management and those charged with governance Good control environment Risk assessment procedures Implementation, operation, and monitoring of IC system Auditor’s responsibility Consider fraud when assessing risk of material misstatement Respond to assessed, identified, or suspected risk Able to express audit opinion at acceptable level of audit risk March/April 2009 Advanced Auditing Advanced Auditing

Terminology Error Fraud
Unintentional act which leads to misstatement of AFS Fraud Intentional act, in order to obtain unfair illegal advantage Fraud may be committed by Management Those charged with governance Employees 3rd parties March/April 2009 Advanced Auditing Advanced Auditing

Terminology Fraud risk factors Management fraud Employee fraud
Indicate an incentive or pressure to commit fraud, or provide an opportunity to commit fraud Management fraud Committed by member of management or person charged with management S45 implications Employee fraud Committed by employee NO S45 implications March/April 2009 Advanced Auditing Advanced Auditing

Terminology 2 Main categories of fraud Fraudulent financial reporting
Intentional misstatements, including omissions – deceive users Perpetrated by management Includes Falsification of accounting records Management override Misappropriation of assets Embezzlement Theft of physical assets, intellectual property Company pays for goods and services not received March/April 2009 Advanced Auditing Advanced Auditing

Auditor’s Responsibilities
Requirements in terms of ISA 240 Attitude of professional scepticism Even where management has previously acted with integrity Discussion amongst audit team Client’s susceptibility to material misstatement due to fraud and error Obtain information  identify risk of material misstatement due to fraud and error NB: consider whether any of the information obtained indicates whether any of the FRAUD RISK FACTORS are present March/April 2009 Advanced Auditing Advanced Auditing

Auditor’s responsibilities
Requirements in terms of ISA 240 Assess the risk of material misstatement due to fraud and error At FS level At assertion level Determine audit response to address the risk March/April 2009 Advanced Auditing Advanced Auditing

Auditor’s response to risk due to fraud
At FS level Assignment and supervision of staff Consider accounting polices adopted by management Element of unpredictability in nature, timing and extent of audit procedures At assertion level Impacts on nature, timing and extent of audit procedures Considerations Attempts to conceal fraud Relevance and reliability of evidence collected March/April 2009 Advanced Auditing Advanced Auditing

Management override Auditor must design and perform procedures to respond to the risk of management override Evaluation of audit evidence Is initial assessment of material misstatement (assertion level) still appropriate after initial procedures have been conducted Examples Discrepancies in accounting records Conflicting or missing evidence Problematic relationships between auditor and management March/April 2009 Advanced Auditing Advanced Auditing

Management representations To include Management is responsible for IC systems – prevent and detect fraud Management has disclosed results of its assessment of risk of material misstatement due to fraud Management has disclosed all frauds involving management and employees Management has disclosed any allegations of fraud Should only ever be corroborating evidence March/April 2009 Advanced Auditing Advanced Auditing

Fraud Risk Factors Stage of audit At the planning stage
Gaining understanding of entity and its environment Gather information to identify the risk of material misstatement due to fraud Assessing the risk of material misstatement due to fraud Does the information gathered indicate the presence of the risk factors March/April 2009 Advanced Auditing Advanced Auditing

Fraud Risk Factors Consideration of Incentives / pressures
On management to report fraudulently On management and employees to misappropriate assets Opportunities For management to report fraudulently For management and employees to misappropriate assets Attitudes / rationalisations Do attitudes of management and employees indicate Fraudulent reporting Misappropriation of assets March/April 2009 Advanced Auditing Advanced Auditing

JOIN KHALID AZIZ COMMERCE COACH
COACHING CLASSES ICMAP STAGE 1,2,3,4..& CAM ICAP MODULE A,B,C,D PIPFA MA-ECONOMICS B.COM, BBA & MBA BA-ECONOMICS INTER COMMERCE R1173, ALNOOR SOCIETY BLOCK 19, F.B.AREA, KARACHI.

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