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Fraud

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Conditions for Fraud (Fraud Triangle) Incentives/Pressures. Opportunities ... Consider whether fraud risk factors exist - Triangle ... – PowerPoint PPT presentation

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Title: Fraud


1
Fraud
2
Fraud
  • History Exp. Gap ? SAS 82? SAS 99
  • Auditor Responsibility
  • Plan and perform the audit to obtain reasonable
    assurance that material misstatements, whether
    due to error or fraud, are detected
  • Types of Fraud
  • Fraudulent Financial Reporting example?
  • Misappropriation of Assets - example
  • Conditions for Fraud (Fraud Triangle)
  • Incentives/Pressures
  • Opportunities
  • Attitudes/Rationalization

3
SAS 99 Big Points
  • Emphasis on professional skepticism question
    and critical
  • Brainstorming session
  • Presumption of risk due to improper revenue
    recognition Research Paper, big potatoes
  • Potential for management override of controls
    opportunity, big potatoes, COSO for small

4
SAS 99 Process
  • Conduct a brainstorming session
  • No prescribed approach/list of participants
    CFE?
  • Emphasize professional skepticism
  • Fraud triangle
  • Should discuss risk of management override of
    controls
  • Discuss potential responses to risk of material
    misstatements due to fraud

5
SAS 99
  • Obtain information to identify risk of material
    misstatements due to fraud
  • Inquire of management about risks SAS 82
  • Consider results of analytical procedures
    Research Paper
  • Consider whether fraud risk factors exist -
    Triangle
  • Consider other information that could be helpful
    NFMs? Competitor performance? LSL trade mags

6
SAS 99 Process
  • Identify risks of material misstatement due to
    fraud
  • Improper revenue recognition is assumed to be a
    risk
  • Separately assess risk of management override of
    controls
  • Assess risks given existing programs and controls
  • IR and CR
  • Adjust audit approach based on assessment of
    risks
  • Overall engagement response (personnel,
    accounting principles, and unpredictable
    approach)
  • Alter NTE of audit procedures
  • Respond to risk of management override of
    controls (journal entries, accounting estimates,
    and business rationale)

7
SAS 99 Process
  • Evaluate audit evidence
  • Assess risks of fraud throughout audit (knowledge
    inc.)
  • Consider whether analytics used as substantive
    tests or during final review suggest unrecognized
    risks
  • Evaluate risk of material misstatement due to
    fraud at or near end of audit (done???)
  • Communicate findings to appropriate parties
  • Management small stuff
  • Audit committee big stuff
  • SEC legal requirements or subpoena
  • Others successor auditor
  • Whistleblowers? - SOX

8
Fraud Documentation
  • The following should be documented
  • Discussion among audit team members during
    planning about susceptibility to fraud
  • Specific fraud risks identified and a description
    of the auditors response
  • Procedures followed to identify and assess risk
    of fraud
  • Reasons for concluding there is not a significant
    risk of material improper revenue recognition
  • Results of procedures performed to address risk
    of management override of controls
  • Conditions causing the auditors to perform
    additional auditing and the actions taken
  • Nature of communications with management, audit
    committee, and others regarding fraud

9
PCAOB Inspections Jan 2007
  • checking off items on standard audit programs and
    checklists
  • auditors failed to expand audit procedures
  • No session, after planning, attendance, no
    inquiry
  • A/P NFMs useful why?
  • http//pcaob.org/inspections/other/01-22_release_2
    007-001.pdf
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