Post-Conference
Auditing and Investigating Fraud
Seminar
Auditing Track
Auditors’ Fraud Responsibilities
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Introduction
Differing roles—one goal
• External auditor
• Internal auditor
• Fraud examiner
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AU Section 316—Consideration of Fraud
in a Financial Statement Audit
Purpose: to “establish standards and provide
guidance to auditors in fulfilling” their
responsibility “to plan and perform the audit to
obtain reasonable assurance about whether the
financial statements are free of material
misstatement, whether caused by error or
fraud.”
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Components of AU Section 316
Description and
characteristics of fraud
Professional skepticism
Engagement personnel
discussion
Obtaining audit evidence
and information
Identifying risks
Assessing the identified
risks
Responding to the risk
assessment
Evaluating audit
evidence and
information
Communicating possible
fraud
Documenting
consideration of fraud
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Summary—AU Section 316
External auditors are responsible for:
• Understanding the causes and signs of fraud
• Assessing the risks of a material financial misstatement
due to fraud
• Planning and performing the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement, whether caused by error
or fraud
• Exercising due care in planning, performing,
evaluating, and documenting the audit
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Summary—AU Section 316
External auditors are responsible for:
• Possessing the proper degree of professional
skepticism
• Assigning significant engagement responsibilities to
audit personnel with sufficient experience and training
• Determining whether significant accounting policies
are acceptable
• Auditing large, unusual, or complex transactions
• Evaluating the significance of differences between the
accounting records and the underlying facts
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Summary—AU Section 316
External auditors are responsible for:
• Accumulating potential audit adjustments and
evaluating the combined effect on the financial
statements
• Reporting all instances of fraud to the appropriate level
of management
• Insisting that financial statements affected by a
material fraud be modified or provide a qualified
opinion
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Summary—AU Section 316
External auditors are responsible for:
• Withdrawing if uncertainties about fraud cannot be
resolved and management cooperation is
unsatisfactory, and communicating the reasons for
withdrawal to those charged with governance
• Informing those charged with governance of fraud,
except those that are clearly inconsequential
• Disclosing fraud to outside agencies in limited
circumstances
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Summary—AU Section 316
External auditors are NOT responsible for:
• Authenticating documents
• Uncovering intentional misstatements concealed by
collusion
• Ensuring or guaranteeing that all misstatements are
discovered
• Reporting most instances of fraud to outside agencies
or parties
• Detecting and reporting errors and irregularities in
areas beyond the scope of a financial statement audit
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Risk-Based Audit Approach
PCAOB and AICPA standards emphasize a
risk-based audit approach.
The audit process begins with risk assessment.
Auditors should focus their resources on the
areas of greatest risk.
This tactic is effective for both internal and
external audits.
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Internal Auditor Responsibilities
International Standards for the Professional
Practice of Internal Auditing
Practice Guide: Internal Auditing and Fraud
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International Standards for the Professional
Practice of Internal Auditing
Standard 1210—Proficiency
Standard 1220—Due Professional Care
Standard 2060—Reporting to Senior
Management and the Board
Standard 2110—Governance
Standard 2120—Risk Management
Standard 2130—Control
Standard 2210—Engagement Objectives
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Practice Guide: Internal Auditing and Fraud
Topics covered:
• Fraud awareness
• Potential fraud indicators
• Fraud-related roles and responsibilities
• Internal auditor’s role during audit engagements
• Fraud risk assessment
• Fraud prevention and detection
• Fraud investigation
• Forming an opinion on internal controls related to
fraud
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Practice Guide: Internal Auditing and Fraud
Internal audit’s role in fighting fraud:
• Consider fraud risks in internal control design and audit
steps.
• Have sufficient knowledge of fraud to identify red flags.
• Be alert to opportunities that could allow fraud.
• Evaluate management’s performance with respect to
fraud risk management.
• Evaluate the indicators of fraud.
• Recommend investigation when appropriate.
• Exercise professional skepticism in all audit work.
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Practice Guide: Internal Auditing and Fraud
Other roles and responsibilities for fraud
prevention and detection:
• Board of directors
• Audit committee
• Management
• Legal counsel
• External auditors
• Loss prevention manager
• Fraud investigators
• Other employees