Journal of Accountancy by Nathan D. Salsbery, CPA, CGMA
August 1, 2022
Follow these do’s and don’ts for auditors when potential wrongdoing surfaces.
Auditors know and understand the requirements of standards regarding consideration of fraud risks. However, when faced with a real situation, it is not always easy to decide on the best course of action.
What are auditors concerned about?
ISA 240 Consideration of Fraud in a Financial Statement Audit defines fraud as “An intentional act by one or more individuals … involving the use of deception that results in a misstatement in financial statements that are the subject of an audit”.
With allegations of fraud, the key consideration for an auditor is whether the fraud might result in material misstatement of the financial statements. Auditors are mainly concerned with misstatements that result from either fraudulent financial reporting or misappropriation of assets.
WHAT TO DO IF THERE IS SUSPECTED FRAUD
Notify the right people
Depending upon who is suspected of the fraud, identify the appropriate members of management or those charged with governance to contact. Notify only those client parties who need to know. Follow the communication guidance included in the standard.
What questions to ask? A list of questions is included in the article to assist in gathering essential facts and to understand the client’s actions and plan to investigate the suspicions or allegations of fraud.
Document your actions and determine the situation’s effect on the audit
Consider the possible outcomes of a client’s fraud investigation and its impact on the audit. How did the client respond to such allegations or suspicions of fraud? If a client does not take such allegations seriously, withdrawal from the engagement may be necessary.
Ensure audit documentation is sufficient to demonstrate adequate support for significant decisions the auditors made in response to allegations or suspicions of fraud. Read the full article here.