Written representations are statements made by client management, 

confirming certain topics

or supporting audit evidence. These representations are needed by the auditor as supporting
evidence in an audit engagement, since management acknowledges its responsibilities in
certain areas and attests to various issues.
Whether the auditor can confirm his suspicion or is unable to confirm suspicion, the effect of
either situation will be reflected in the Auditor’s report.
Effect on auditor’s report:

 Effect not material: Qualified Opinion

 Suspicion confirmed: Adverse Opinion
 Suspicion neither confirmed nor dispelled: Disclaimer of opinion
Communications with Management
If the auditor has identified a fraud or has obtained information that indicates that a fraud may
exist, the auditor shall communicate these matters on a timely basis to the appropriate level of
management in order to inform those with primary responsibility for the prevention and
detection of fraud of matters relevant to their responsibilities. (Ref: Para. A60) 41.
For example, if you discover that a member of senior management has fraudulently overstated
his or her expenses for reimbursement, you will want to reevaluate the integrity of that
individual and the impact an untrustworthy person in that position could have on the financial
statements and your engagement.
You need to discuss the matter and the approach for further investigation with an appropriate
level of management that is at least one level above those involved and with senior
management and the audit committee.
Communication with Those Charged with Governance
If the auditor has identified or suspects fraud involving:
(a) management;
(b) employees who have significant roles in internal control; or
(c) others where the fraud results in a material misstatement in the financial statements,
the auditor shall communicate these matters to those charged with governance on a timely
basis. If the auditor suspects fraud involving management, the auditor shall communicate these
suspicions to those charged with governance and discuss with them the nature, timing and
extent of audit procedures necessary to complete the audit. (Ref: Para. A61–A63) 42. The
auditor shall communicate with those charged with governance any other matters related to
fraud that are, in the auditor’s judgment, relevant to their responsibilities
Communications with Regulatory and Enforcement Authorities
If the auditor has identified or suspects a fraud, the auditor shall determine whether there is a
responsibility to report the occurrence or suspicion to a party outside the entity.

WITHDRAWING FROM ENGAGEMENT BECAUSE OF FRAUD

There are some scenarios in which an auditor might withdraw from an audit, including limited
scope, suspected fraudulent activity, lack of client integrity, and loss of independence.
When identifying fraudulent activity with a client, auditors have a choice to withdraw from an
audit. Why? Because an audit engagement is a two-way street: It takes both the auditor and
the client to do their part in order to maintain the integrity of the engagement.
1. The auditor should inquire of management about management's understanding about
the risks of fraud in the entity, including any specific fraud risks the entity has identified
or account balances or classes of transactions for which a risk of fraud may be likely to
exist
the entity must established programs and controls to mitigate specific fraud risks the entity has
identified, or that otherwise help to prevent, deter, and detect fraud, and how management
monitors those programs and controls. If the entity has failed to make these certain actions, the
auditor may consider withdrawing from the engagement.
2.

the identification of a risk of material misstatement due to fraud involves the application of
professional judgment and includes the consideration of the attributes of the risk, including:

 The type of risk that may exist, that is, whether it involves fraudulent financial reporting
or misappropriation of assets
 The significance of the risk, that is, whether it is of a magnitude that could lead to result
in a possible material misstatement of the financial statements
 The likelihood of the risk, that is, the likelihood that it will result in a material
misstatement in the financial statements.    
 The pervasiveness of the risk, that is, whether the potential risk is pervasive to the
financial statements as a whole or specifically related to a particular assertion, account,
or class of transactions.
NOCLAR

BASE SA BOOK

RESPONSIBILITY FOR COMPLIANCE WITH LAWS AND REGULATIONS

INTRO-If the auditor identifies or suspects non-compliance, the auditor will need to consider
whether law, regulation and ethical requirements either require the auditor to report to an
appropriate authority outside the entity, or establish responsibilities under which this may be
appropriate.  

OUTRO-It is the responsibility of management, with the oversight of those charged with
governance, to ensure that the entity’s operations are conducted in accordance with laws and
regulations. Laws and regulations may affect an entity’s financial statements in different ways:
for example, most directly, they may affect specific disclosures required of the entity in the
financial statements or they may prescribe the applicable financial reporting framework. They
may also establish certain legal rights and obligations of the entity, some of which will be
recognized in the entity’s financial statements. In addition, laws and regulations may impose
penalties in cases of non-compliance.

AUDITOR’S CONSIDERATION OF LAWS AND REGULATIONS

INTRO- The effect on financial statements of laws and regulations varies considerably. Those
laws and regulations to which an entity is subject constitute the legal and regulatory
framework. The provisions of some laws or regulations have a direct effect on the financial
statements in that they determine the reported amounts and disclosures in an entity’s financial
statements. Other laws or regulations are to be complied with by management or set the
provisions under which the entity is allowed to conduct its business but do not have a direct
effect on an entity’s financial statements.
DIFFICULTY IN DETECTING NON-COMPLIANCE
READ RA SA BOOK
is the auditor responsible for detecting any kind of fraud that may have occurred? Absolutely
not. The auditors responsibility relates to the detection of material misstatements caused by
fraud and is not directed to the detection of fraudulent activity per se. Thus, the auditor of
financial statements must obtain reasonable assurance that the statements are free of material
misstatements, whether caused by error or fraud.