Professional Documents
Culture Documents
Presentation Outline
I. Financial Statement Responsibilities
II. Categories of Fraud
III. Auditor Responsibility for Detection of Illegal
Acts
IV. Managing the Audit Process
V. Phases of the Audit Process
I. Financial Statement
Responsibilities
A.
B. Client Management
Responsibilities
Financial statements and
internal control.
Sarbanes-Oxley requires
CEO and CFO of public
companies to certify
quarterly and annual
financial statements
submitted to the SEC. The
Act also provides for criminal
penalties for anyone who
knowingly falsely certifies
the statements.
C. Auditor Responsibilities
Auditor must 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.
D. Terminology
1.
2.
3.
4.
Material v.
Immaterial
Reasonable
Assurance
Error v. Fraud
Professional
Skepticism
1. Material v. Immaterial
Misstatements are usually
considered material if the
combined uncorrected errors
and fraud in the financial
statements would influence a
reasonable person using the
statements.
It would be extremely costly
and probably impossible to hold
the auditor accountable for
immaterial errors and fraud.
2. Reasonable Assurance
3. Error v. Fraud
An error is an
unintentional
misstatement of the
financial statements,
whereas fraud is
intentional.
For fraud, there is a
distinction between
misappropriation of
assets and fraudulent
financial reporting.
4. Professional Skepticism
Audit should be
designed to provide
reasonable assurance
of detecting both
material errors and
fraud in the financial
statements.
Although an auditor
should not assume that
management is
dishonest, the possibility
of dishonesty must also
be considered.
A.
B. Misappropriation of Assets
Often perpetrated by
employees and
sometimes
management.
Harms investors
because assets are no
longer available.
Misappropriations often
result in fraudulent
financial reporting to
hide the theft.
C.
D.
B.
Auditor Tests
Financial statement
components are
properly combined or
separated, described
and disclosed.
2. Existence or Occurrence
Management Represents
Existence is concerned
with whether assets,
obligations, and equities
included in the balance
sheet actually existed on
the balance sheet date.
Transactions recorded
occurred during the
accounting period.
Auditor Tests
Auditor Tests
4. Completeness
Management Represents
All transactions and
accounts that should be
presented in the
financial statements are
included.
Auditor Tests
5. Valuation or Allocation
Management Represents
Auditor Tests
A.
B.
D.
Summary
1. Client and auditor responsibilities
2. Fraudulent financial reporting
vs. misappropriation of assets.
3. Testing client assertions
4. Phases of the audit process