Auditor's

Responsibility
• Fair presentation of financial statement -
Management
• Design the audit to provide reasonable
assurance of detecting material
misstatements in Financial Statements.
Misstatements may emanate:
1. Error
2. Fraud
3. Noncompliance with Laws and
Regulations
PSA 240
The Auditor's Responsibility to
Consider Fraud in an Audit of
Financial Statements.
Types of Fraud:
1. Fraudulent financial reporting
2. Misappropriation of assets or
employee fraud
Auditors Responsibility
PLANNING PHASE
1. When planning an audit, the auditor should
make inquiries of management about
possibility of misstetements due to fraud
and error.
2. The auditor should asses the risk that fraud
or error may cause the financial Statements
to contain material misstatements.
Examples of Fraud risk factors
• Fraud risk factors resulting from fraudulent
financial reporting
1. Management's characteristics and
influence over the control environment
2. Industry conditions
3. Operating characteristics and financial
stability
• Fraud risk factors resulting from
misappropriation of assets
1. Susceptibility of assets to misappropriation
2. Controls
TESTING PHASE
3. During the course of the audit, the auditor
may encounter circumstances that may
indicate the possibility of fraud or error.
4. After identifying material misstatements in
the financial statements, the auditor should
consider whether such a misstatement
resulted from a fraud or an error.
COMPLETION PHASE
5. The auditor should obtain a written
representation from the client's management.

CONSIDER THE EFFECT ON THE AUDITOR'S

REPORT
6. When the auditor believes that material
error or fraud exists, he should request the
management to revise the financial
statements.
7. If the auditor is unable to evaluate the
effect or fraud on the financial statements
because of the limitation on the scope of the
Noncompliance with laws and
regulations
PSA 250
Consideration of Laws and Regulations in
an Audit of Financial Statements
PLANNING PHASE
1. In order to plan the audit, the auditor should
obtain a general understanding of the legal and
regulatory framework applicable to the entity and
the industry and how the entity is complying with
that framework.
2. After obtaining the general understanding, the
auditor should design procedures to help identify
instances of noncompliance with those laws and
regulations wher noncompliance should be
considered when preparing financial statements.
3. The auditor should also design audit
procedures to obtain sufficient appropriate audit
evidence about compliance with those laws and
regulations generally recognized by the auditorto
have an effect on the determination of material
amounts and disclosures in financial statements.
TESTING PHASE
4. When the auditor becomes aware of
information concerning a possible instance of
noncompliance, the auditor should obtain an
understanding of the nature of the act and the
circumstances in which it has occurred, and
sufficient other information to evaluate the
possible effect on the financial statements.
5. When the auditor believes there may be
noncompliance, the auditor should document the
findings, discuss them with management, and
consider the implication on other aspects of the
audit.
COMPLETION PHASE
6. The auditor should obtain written
representations that management has
disclosed to the auditor all known actual or
possible noncompliance with laws and
regulations that could materially affect the
financial statements.
Consider the effect on the
auditor's report
7. Request the management to revise the
financial statements. Otherwise, a qualified or
adverse opinion will be issued.
8. If a scope limitation has precluded the
auditor from obtaining sufficient appropriate
evidence to evaluate the effect of
noncompliance with laws and regulations, the
auditor should express a qualified opinion or a
disclaimer of opinion.
Objective and General Principles
Governing Audit of Financial
Statements (PSA 200)
• Ethical Requirements
• Conduct an Audit
• Scope of an Audit
• Reasonable Assurance
• Responsibility for the financial
statements