Auditng - Fraud Essay

1176 WordsApr 30, 20135 Pages
Fraud Definition provided in ISA240 – An intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an unjust or illegal advantage. ISA200 stated the responsibilities of an auditor relating to fraud – To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. The ISA stresses the main responsibility for the prevention and detection of fraud lies with management and those charged with governance. Audit standards require auditors to maintain a level of professional skeptism. Which doesn’t mean auditors need to be paranoid of fraud. Assumes management is neither dishonest or honest as they conduct their audit. Responsible for obtaining reasonable assurance that the FS is free from material misstatement How do we demonstrate that auditors have exercised professional skeptism during audit. Consider fraud Scrutinizing evidence – investigate all documents for authenticity Investigate inconsistencies – following up any inconsistencies between the audit evidence and enquiries with the senior management and board of directors. Representation of management alone is not sufficient evidence and requires to cooperate from other sources. Fraud is a breach of trust by an employee- these criminial actions result in a direct or indirect benefit to the employee. Types of fraud So many variations. Employee fraud – fraud arising from an inside job o Misapporpriation of asset/theft- common type of fraud,  e.g. skimming – is a fraud where employee pockets cash from a customer before it is ever recorded by the company or by reversing the sale.  Forging cheques – withdraw money to pay for fictitious expenses.  Inventory fraud - steal small assets such

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