audit fraud & error p7

Fraud v Error

Fraud v Error

Intentional

Fraud v ErrorIntentional

Fraud v ErrorIntentional

Misinterpretation

Fraud v ErrorIntentional

Misinterpretation

Fraud v ErrorIntentional

Misinterpretation

Incorrect Accounting

Fraud v ErrorIntentional

MisinterpretationIncorrect Accounting

Fraud v ErrorIntentional

MisinterpretationIncorrect Accounting

There may be requirements to report suspicions of fraud, but not error

Management v Auditor

Management v Auditor

Prepare T&F

Management v AuditorPrepare T&F

Management v AuditorPrepare T&F

Prevent & Detect Fraud

Management v AuditorPrepare T&F

Prevent & Detect Fraud

Management v AuditorPrepare T&F

Prevent & Detect Fraud

Internal Controls

Management v AuditorPrepare T&F

Prevent & Detect Fraud

Internal Controls

Good Corporate Governance

Management v Auditor

Management v Auditor

Report on T&F

Management v AuditorReport on T&F

Management v AuditorReport on T&F

Reasonable Assurance Fraud & ERROR

Management v AuditorReport on T&F

Reasonable Assurance Fraud & ERROR

Management v AuditorReport on T&F

Reasonable Assurance Fraud & ERROR

Primary F&E responsibility lies with management

Management v AuditorReport on T&F

Reasonable Assurance Fraud & ERROR

Primary F&E responsibility lies with management

consider the risk of material misstatement

Management v Auditor

Management v Auditor

Reduce fraud opportunities

Management v Auditor

Reduce fraud opportunities

Establish a culture where no fraud

Management v Auditor

Reduce fraud opportunities

Establish a culture where no fraud due to the likelihood of detection

Professional Scepticism

Professional Scepticism

Discuss fraud within specific characteristics of the audit & potential effect on FS

Professional Scepticism

Discuss fraud within specific characteristics of the audit & potential effect on FS

Professional Scepticism

Discuss fraud within specific characteristics of the audit & potential effect on FS

Talk to management about controls to detect or

prevent fraud

Professional Scepticism

Discuss fraud within specific characteristics of the audit & potential effect on FS

Talk to management about controls to detect or

prevent fraud

Obtain evidence that fraud has not occurred or detected and corrected

Fraud/Error is Suspected?

Fraud/Error is Suspected?

Fraud/Error is Suspected? Effect on FS?

Fraud/Error is Suspected? Effect on FS?

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagement

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

If ManagementSuspected?

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

If ManagementSuspected?

Get legal advice or rarely resign

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

If ManagementSuspected?

Get legal advice or rarely resign

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

If ManagementSuspected?

Get legal advice or rarely resign

ConsiderReportImpact

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

If ManagementSuspected?

Get legal advice or rarely resign

ConsiderReportImpact

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

If ManagementSuspected?

Get legal advice or rarely resign

ConsiderReportImpact

Report toAuthorities?

Fraud/Error is Suspected? Effect on FS?

Document in Audit files

AdditionalTesting?

Extent of misstatement

Effect onRisk?

Discuss withManagementTell them to get

legaladvice if fraud is

suspected

If ManagementSuspected?

Get legal advice or rarely resign

ConsiderReportImpact

Report toAuthorities?

Consider Confidentiality

The Auditor - Criminal Liability

The Auditor - Criminal Liability

Accepting appointment without being qualified

The Auditor - Criminal Liability

Accepting appointment without being qualified

Being involved with fraud

The Auditor - Criminal Liability

Accepting appointment without being qualified

Being involved with fraud

Insider Dealing

The Auditor - Criminal Liability

Accepting appointment without being qualified

Being involved with fraud

Insider Dealing

Money Laundering

The Auditor - Civil Liability

The Auditor - Civil Liability

Negligent (careless) auditing

The Auditor - Civil Liability

Negligent (careless) auditing

Sued by Client company under contract law

The Auditor - Civil Liability

Negligent (careless) auditing

Sued by Client company under contract law

Sued by banks etc under negligence

The Auditor - Duty of skill & Care

The Auditor - Duty of skill & Care

Depends on the circumstance

The Auditor - Duty of skill & Care

Depends on the circumstanceeg. Accepting the word of management after

suspicion is aroused

The Auditor - Duty of skill & Care

Depends on the circumstanceeg. Accepting the word of management after

suspicion is arousedFollow ISAs and show this in working papers

The Auditor - Professional competence

The Auditor - Professional competence

Achieve, and maintain, professional knowledge

The Auditor - Professional competence

Achieve, and maintain, professional knowledge

eg. Formal & Informal training + experience

The Auditor - Professional competence

Achieve, and maintain, professional knowledge

eg. Formal & Informal training + experience

Awareness of general business developments,such as dropbox and e-commerce

The Auditor - Due care

The Auditor - Due care

Acting diligently in accordance with technical and professional standards

The Auditor - Due care

Acting diligently in accordance with technical and professional standardsmeans applying knowledge minimising the chance of mistakes

being made

The Auditor - Due care

Acting diligently in accordance with technical and professional standardsmeans applying knowledge minimising the chance of mistakes

being made

Enough time to complete work with due careStaff fully understand the objectives

The Auditor - Negligence - A Civil Wrong

The Auditor - Negligence - A Civil Wrong

Duty of Care

The Auditor - Negligence - A Civil Wrong

Duty of CareDuty is broken

The Auditor - Negligence - A Civil Wrong

Duty of CareDuty is brokenDamage results

The Auditor - Negligence - A Civil Wrong

Duty of CareDuty is brokenDamage results

The auditor does not exist to aid investment decisions, unless verbal assurances given

Fraudulent Financial Reporting

Fraudulent Financial ReportingIntentional

Misstatement!

Fraudulent Financial Reporting

Fraudulent Financial Reporting

Manipulation

Fraudulent Financial Reporting

ManipulationMisrepresentation

Fraudulent Financial Reporting

ManipulationMisrepresentation

Misapplication

Fraudulent Financial Reporting

ManipulationMisrepresentation

Misapplication

Earnings Management