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THE AUDITORS
RESPONSIBILITIES
RELATING TO FRAUD IN
AN AUDIT OF
FINANCIAL STATEMENTS
(PSA 240)
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Unintentional
Fraud
Intentional
Misstatements
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Conditions generally
present when material
misstatements due to
fraud occur:
Fraud
Rationalizati
on
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Perceived
Opportunity
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Causing an entity to pay for goods and services not received (for example,
payments to fictitious vendors, kickbacks paid by vendors to the entitys
purchasing agents in return for inflating prices, payments to fictitious
employees).
Using an entitys assets for personal use (for example, using the entitys
assets as collateral for a personal loan or a loan to a related party).
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EFFECTIVE DATE
This PSA is effective for audits of financial statements for periods
beginning on or after December 15, 2009.
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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PROFESSIONAL SKEPTICISM
Is an attitude that includes a questioning mind and a critical
assessment of audit evidence.
Lets review
An audit performed in accordance with PSAs rarely involves the
authentication of documents, nor is the auditor trained as or
expected to be an expert in such authentication.
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PROFESSIONAL SKEPTICISM
But note
When the auditor identifies conditions that cause the auditor to
believe that a document may not be authentic or that terms in a
document have been modified but not disclosed to the auditor,
possible procedures to investigate further may include:
Confirming directly with the third party.
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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Assessment of the risk that FS may have material misstatement due to fraud (also, ask
the nature, extent and frequency of assessment).
How management communicate with TCWG regarding its processes for identifying
and responding to the risks of fraud in the entity.
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement
Due to Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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Start
Is there
a
misstate
ment?
Indicative
of Fraud?
(Whether
material or
immaterial)
Yes
No
None
End
Yes
No
End
When the auditor confirms that, or is
unable to conclude whether, the
financial statements are materially
misstated as a result of fraud the
auditor shall evaluate the
implications for the audit.
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End
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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i.
Discuss with the appropriate level of management and those charged with governance
the auditors withdrawal from the engagement and the reasons for the withdrawal;
ii.
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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MANAGEMENT REPRESENTATIONS
The auditor shall
management that:
obtain
written
representations
from
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MANAGEMENT REPRESENTATIONS
It has disclosed to the auditor its knowledge of fraud or
suspected fraud affecting the entity involving:
i. Management;
ii. Employees who have significant roles in internal control; or
iii. Others where the fraud could have a material effect on the financial
statements; and
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material Misstatement Due
to Fraud
Responses to the Assessed Risks of Material Misstatement Due to Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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COMMUNICATIONS TO REGULATORY
AND ENFORCEMENT AUTHORITIES
If the auditor has identified or suspects a fraud, the auditor shall
determine whether there is a responsibility to report the
occurrence or suspicion to a party outside the entity. Although
the auditors professional duty to maintain the confidentiality of
client information may preclude such reporting, the auditors
legal responsibilities may override the duty of
confidentiality in some circumstances.
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REQUIREMENTS
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Professional Skepticism
Discussion Among the Engagement Team
Risk Assessment Procedures and Related Activities
Identification and Assessment of the Risks of Material
Misstatement Due to Fraud
Responses to the Assessed Risks of Material Misstatement Due to
Fraud
Evaluation of Audit Evidence
Auditor Unable to Continue the Engagement
Management Representations
Communications To Management and With Those Charged With
Governance
Communications to Regulatory and Enforcement Authorities
Documentation
Classified - Internal use
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DOCUMENTATION
Documentation of the understanding of the entity and its
environment and the assessment of the risks of material
misstatement required by ISA 315 shall include:
a) The significant decisions reached during the discussion among the
engagement team regarding the susceptibility of the entitys
financial statements to material misstatement due to fraud; and
b) The identified and assessed risks of material misstatement due to
fraud at the financial statement level and at the assertion level.
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DOCUMENTATION
Documentation of the responses to the assessed risks of
material misstatement required by PSA 330 shall include:
a) The overall responses to the assessed risks of material
misstatement due to fraud at the financial statement level and
the nature, timing and extent of audit procedures, and the
linkage of those procedures with the assessed risks of material
misstatement due to fraud at the assertion level; and
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Questions?
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