AUDITOR’S RESPONSIBILITIES - ultimate responsible for prevention and

detection of fraud
REGARDING FRAUD HOW?
Through DIM of Internal control
FRAUD
Designing
- An intentional act by one or more Implementing
individuals among management, those Monitoring
charged with governance, employee, or - paano nagiging effective?
third parties, involving the use of
Kung may sinusunod na framework like
deception to obtain an unjust or illegal
COSO
advantage.
- Ginagawa ng tao kapag nanloloko sya
- Present sa business
- Examples: Fraud Related to Audit
Theft 1. Misappropriation of Asset (most
Corruption common)
Manipulation - Theft or misuse of an organization’s
Misrepresentation assets/ resources
- Defalcation or Employee Fraud
ERROR - Usually ranked and filed employees
(mababa position) kase mababa ang
- Unintentional sweldo
- Misjudgment - Usually, immaterial
- Miscalculation
- Misapplication Examples:
- There is no deception  Embezzling receipts
 Stealing physical assets
 Stealing intellectual property
Based on PSA 200  Disbursement for unreceived goods
Auditor’s Responsibility or services
 Using resources for personal use
- Auditor is responsible for obtaining
reasonable assurance that the FS as a 2. Fraudulent Financial Reporting
whole are free from material - Manipulation of FS
misstatements, whether due too fraud - Management fraud kase sila lang
or error. naman ang may access ss FS
- Auditor is not expected to detect all - Usually material misstatement
fraud (yung MATERIAL LANG)
Examples:

 Fictitious journal entries

Accountability & Responsibility  Inapproppriate adjusttments
Management & those charged with Governance  Omitting, advancing or delaying
recognition
 Concealing facts
  Misrepresenting FS - Management is neither assumed honest
 Altering records nor dishonest
- Records and documents are presumed
to be genuine (it is not the job of
Fraud Risk Factors auditor to authenticate documents)

- Elements/ attributes of fraud Professional Judgement (competence)

- Red flags, warnings
- Application of relevant training,
- Indicate the existence of fraud
professional knowledge, skills and
experience in making decision
Fraud Triangle
1. Incentive and pressure
-avoid consequences
Discussion among the team
2. Opportunity
-weak control a. Discussion among the engagement
3. Attitude and Rationalization partner and key audit members
-justification of action -susceptibility to material statements
due to fraud
- indications of earning of management
Detection Risk - external and internal fraud risk factors
- audit procedures to respond to
- The risk of not detecting misstatements
susceptibility to fraud
due to fraud is higher than due to error
- allegations of fraud
dahil ang fraud ay intended to be
concealed Risk Assessment Procedures
- The risk of not detecting material
A. Inquiries of management (need ng
misstatements due to management
corroborating or refuting evidence/
fraud is higher than employee fraud
information) because they are in the
(because management can override
best position to perpetuate fraud
controls)
- Assessment of risk of material
Auditor’s Objective misstatements due to fraud
- Inquiries of knowledge of actual,
A. Objective in relation w/ fraud
suspected or alleged fraud
- Identify and assess risk of material
B. Those charged w/ governance and
misstatements due to fraud
internal auditor
- Obtain sufficient appropriate evidence
- Inquiries of knowledge of actual,
through designing and implementing
suspected or alleged fraud
appropriate response
C. Analytical Procedures
- Respond appropriately to identified or
D. Evaluation of fraud risk factors
suspected fraud

Professional Skepticism (attitude)

Identification and Assessment
- Questioning mind and critical
assessment a. Identify and assess of RMM due to
fraud
 - At FS level
- At assertion level of transactions,
account balances and disclosurs
b. Risk of fraud of revenue recognition
(overstatement)
c. Understanding the entity’s control
(related to fraud)
Paano if may suspected fraud na?
Responses to Assessed Risk
A. Overall responses
- Assignment and supervision
personnel (sa mga areas a mataas yun
risk dapat mas qualify yun personnel)
- Evaluate accounting policies
Pag complex ang policy mas madali
magtago ng fraud
- Element of unpredictability/ surprise
B. Responses to risk at the Assertion level
- Changing the nature, timing and extent
of procedures
C. Response to assessed risk
- Test the appropriateness of journal
entries and adjustments
- Reviewing accounting estimates for
biases
- Evaluating business rationale for
significant unusual transactions
Evaluation of Audit Evidence (qualitative
matter based on professional judgement)
a. Analytical procedures results are
consistent w/ auditor’s understanding
b. Are misstatements due to fraud?
-fraud is unlikely to be an isolated
occurrence
c. Reevaluate risk assessment
management fraud is suspected
d. Evaluate implications if auditor is
unable to conclude whether FS is
materially misstated
Withdrawal from Engagement
Identified fraud or suspected fraud?
A. Determine professional and legal
responsibility
B. Consider whether withdrawal is
appropriate and legally permitted
*if decided to withdraw:
- discuss w/ mgt and TCWG
- determine reporting responsibilities
Management Representation
of
- Acknowledgement of mgt’s
responsibility
Obtain written representations that Mgt:
- Acknowledge its responsibilities to
prevent and detect fraud
- Discloses its assessment of RMM due to
fraud
- Discloses known and suspected fraud
- Discloses allegations of fraud
Communication to client
A. Communication with management
- Suspected or detected fraud to
appropriate management (at least 1
level above the persons involve)
B. Communication with those charged
with governance
- Suspected or detected management
frau and those result to material
misstatements
- Inquire about known or suspected fraud
and senior mgt’s integrity and
competence
if *Doubtful integrity? Mgt & TCWG
- may seek legal advice
Communication to Regulators
Suspected or Detected fraud?
 - The auditor shall determine whether
there Is a responsibility to report the
occurrence or suspicion to a party
outside the entity
Legal responsibility may override
confidentiality
Documentation
A. Understanding of entity and its
environment and the assessment of the
risk of material misstatements
B. Responses to assessed RMM
C. Communications about fraud to mgt,
TCWG, regulators and others
D. Presumption that the risk of fraud
revenue recognition is not applicable
(maybe cash basis si entity or isa lang
source)
AUDIT DOCUMENATION
Preparation of Audit Documentation
(PSA 230)
Timeliness
Audit Documentation
- The record of audit procedures
performed, relevant audit evidence
obtained and conclusions the auditor
reached
- Aka WORKING PAPERS
It provides evidence
A. basis of conclusion
B. basis of compliance (in accordance with
PSAs)
in other words
“Documentation provides evidence that the
Form, Content, and Extent
audit complies with PSAs.”
Other purposes
- assist the engagement team to plan and
perform the audit
- assist members to direct and supervise
the audit work, and to discharge the
review responsibilities
- enable engagement team to be
accountable
- retains a record of matters of
continuing significance to future audits
(audit file: 1 current and 2 permanent
file)
- enable the conduct of quality control
reviews and inspection in accordance
with PSQC1
- enable the conduct of external
inspections in accordance with
applicable legal, regulatory or other
requirements
- also serve as the auditor’s primary
defense in case of lawsuit
- auditor shall prepare audit
documentation on a timely basis
- pag ginawa mo a idocument mo na
agad
- it helps to enhance the quality of audit
- facilitates the effective review and
evaluation of the audit evidence
obtained and conclusions reached
before the auditor’s finalized
- kase pagafter yun documentation it is
likely to be less accurate than
documentation prepared at the time
performed
- documentation should be sufficient to
enable an experienced auditor with no
 previous connection with the audit to - Correspondence (email) concerning
understand: significant matters

Form *Client’s accounting records may be included as

part of documentation however,
a. nature, timing and extent of
documentation is not a substitute for client’s
procedures performed
record
b. the results of the audit performed
and the audit evidence
c. significant matters arising during
Departure from a requirement
the audit, conclusions reached
thereon, and significant - Pag may hindi ginawa si auditor na
professional judgement requirement
- If, in exceptional circumstances, the
Content
auditor judges it necessary to depart
a. the identifying characteristics of from a relevant requirement in a PA,
specifics items or matters tested the auditor shall document how the
b. who performed the audit and the alternative audit procedures performed
date such work was completed achieved the aim of that requirement,
c. who reviewed the audit work and the reasons of the departure
performed and the extent of such
review
Assembly of Final Audit File
the auditor shall also document
- The auditor shall assemble the audit
- discussion of significant matters
documentation in an audit file and
o management
complete the administrative process of
o TWCG
the assembling the final audit file
o Others, such as client’s
(ARCHIVING) on a timely basis
personnel, experts, other
(WITTHIN 60 DAYS) after the date of the
auditors and regulators
auditor’s report
- Inconsistency regarding significant
matters Audit file

- One or more folders or other storage

- Documentation may be recorded on
media, in physical or electronic form,
paper or on electronic or other media
containing the records that comprise
Examples: the audit documentation for a specific
engagement
- Audit programs
- Analysis
- Issues memoranda
- After assembly, the auditor shall not
- Summaries of significant matters
delete or discard audit documentation
- Letters of confirmation and
of any nature before the end of its
representation
retention period (10 years from the
- Checklist
date of audit report)

- Audit file may be modified but with
documentation of:
o Specific reasons
o When and by whom they were
made and reviewed
AUDIT PLANNING
Audit Planning
- How to conduct the audit engagement
- Planning involves developing a general
strategy and detailed approach for the
expected nature, timing extent of the
audit
- Overall strategy
- Detailed approach – audit plan
- It is not a discrete phase, but rather a
continual and iterative process that
often begins shortly after the
completion of the previous audit and
continues until the completion of the
current audit
- Risk-based approach
Lagi inuupdate yun risk assessment
natin base sa ginagawa at nadidiscover
mo
Adequate planning
Hels the auditor:
- Devote appropriate attention to
important areas
- Identify and resolve potential problems
on a timely basis
- Properly organize and manage that
audit so that it is performed in an
effective and efficient
- Assist in the selection of team members
to respond to anticipated risks and the
proper assignment of work
- Facilitate the direction and supervision
of team members and review of their
work
- Coordination of work done by auditors
of components and experts (depende
sa size, isang component, isang branch)
- *involvement of the engagement
partner and other key members in
planning enhances the effectiveness
and efficiency of the planning process
- * auditor may decide to discuss
elements of planning with the client’s
management but with care in order not
to compromise the effectiveness of the
audit (still have a element of surprise)
Overall audit Strategy
In establishing this, the auditor shall:
- Identify the characteristics of the
engagement that define its scope
E.g (PSA 300)
Reporting requirements
Expected audit coverage
*scope of an audit – procedures
deemed necessary
- ascertain the reporting objectives to the
plan the timing of the audit and the
nature of communications
o timetable reporting
o discussions with management
and TCWG
- when to report weaknesses or
misstatements
- Consider the significant factors in
directing the engagaement team’s
effort
o Determination of materiality
level
o Significant changes and
developments
- Consider the results of preliminary
engagements
o You should have necessary
competence
 INAMO – things to consider
Industry (competitors, regulatory
framework)
Nature of the entity (application of
policies, operations, organization
structure)
Accounting policies
Measurement and review of the
performance of entity
Objective and strategies of the mgt
INAMA + IC
Internal control (safeguard of the
organization pero in auditing what is
important lang is yun related sa FS)
3-fold objectives of IC
1. Effectiveness and efficiency of
operations
2. Reliability of FS
3. Compliance
(4) Safeguarding of the assets of the
org
Elements of Internal Control
1. Control environment
2. Risk assessment
3. Control activities
4. Information and communication
5. Monitoring
- Ascertain the nature, timing and extent
of resources necessary to perform the
engagement
o Selection of engagement team and
assignment of work
o Engagement budgeting
Benefits of Overall Strategy
The process of establishing the overall audit
strategy assist the auditor to determine
- Resources to deploy for specific audit
areas such a use of
o Experienced team members for
high-risk areas
o Experts on complex matters
- Amount of the resources to allocate to
specific audit areas such as
o Number of team members assigned
to perform a procedure
o Extent of review of the auditors’
work
o Budget in hours to allocate to high-
risk areas
- When such resourxxes are to be
deployed
o Interim audit stage
o Key cut-off dates
- How such resources are managed,
directed and supervised such as
o Schedule of briefing and debriefing
meetings
o How reviews are expected to take
place
o Whether to complete engagement
quality control reviews
Audit Plan
- Once the overall audit strategy has
been established, an audit plan can be
developed
- More detailed than the overall audit
strategy in that it includes the nature,
timing and extent of audit procedures
to be performed by engagement team
The audit plan should include a description of
A. The nature, timing and extent of
planned risk assessment
B. The nature, timing and extent of
planned further audit procedures at the
assertion level
- Test of control
- Substantive test
C. Other planned procedures
Direction, supervision & review

- Direction – pag aassign ng task Changes to Planning

- Supervision- normally ginagawa ng
- Planning is not a discrete phase, but
senior auditor
rather a continual and iterative process
- Review- engagement partner
- As a result of unexpected events,
- The auditor shall pplan the nature,
changes in conditions, or the audit
timing and extent of direction and
evidence obtained, the auditor may
supervision of team members and the
need to modify the overall audit
review of the worl
strategy and audit plan
It may vary depending on factors including
Documentation
o Size and complexity of the entity
- Document the overall strategy and the
o Area of audit
audit plan including any significant
o Assessed risk of material
changes
misstatements
- Compliance
o Capabilities and competence of the
- Evidence na gianawa mo tama or
performing members
sumunod ka standard
Audit programs
How it is documented:
- Sets out the nature, timing and extent
A. Overall audit strategy
of planned audit procedures required to
- Record of key decisions
implement the overall audit plan
B. Audit plan
- Listahan ng plano
- Record of planned risk assessment
- It serves as a set of instructions to
procedures and further procedures
assistants involved in the audit and as a
C. Significant changes
mean to control the proper execution
- Record of explanation of changes and
of work (gagawin na mga procedures ng
the final overall audit strategy and audit
staff)
plan

Audit Plan VS Audit Program

Additional Considerations
Audit plan
For initial audits, additional matters the auditor
Includes consideration of may consider include

- Risk assessment procedures - Arrangements with predecessor auditor

- Further audit procedures such as review of working papers
- Other planned procedures - Any major issues discussed with
management
Audit Program - Audit procedures regarding opening
Schedule of further audit procedures balances
- Other procedures required by the
- Test of controls system of quality control for initial
- Substantive tests audits
For all audits

Consideration of work performed by

- Client’s staff (dapat walang judgement

na kailangan), including internal
auditors (competence and objectivity) –
may reduce the cost of audit
- Specialist or experts – brings unique
knowledge and judgement
- Other CPAs – when a component is
audited by another firm