CLASS SEVEN – SUMMARY
CAS 240: Auditors Responsibilities with Fraud
•The CAS requires the auditor to:
oProperly identify fraud risk factors
oAssess fraud risk accordingly
oDesign audit procedures to mitigate these risks
•Characteristics of Fraud
oMisstatements are intentional vs. unintentional.
oWe are concerned with material fraud
oTwo types of misstatements:
Fraudulent financial reporting
Misappropriation of assets
•Requirements to Avoid Fraud
oProfessional scepticism should be practiced
oThe engagement team should discuss where fraud may be possible
oInquires should be made to determine if any fraud has taken place or has
oIdentify any unusual or unexpected relationships between accounts (not
oEvaluate fraud risk factors:
•Financial stability is threatened by economic factors
•Meeting covenant expectations
•The personal financial situation of management is affected by
the entity’s financial situation.
•Adverse relationships between the employees and the
management may lead to theft.
•Significant related-party transactions
•Significant uses of estimates
•Bad internal controls (no separation of duties) – large amounts
of cash on hand.
Attitudes & Rationalization
•Management failing to fix internal controls
•Non-financial management takes part in making decisions
when choosing accounting policies.
•Some kind of falling out between the current/previous auditor
and the management.
•Tolerance of petty theft.
•Changes in behaviour or lifestyle.
•Responses to assessed fraud risk factors
oVisiting locations or performing certain tests on a surprise or unannounced
oInventory count should be done at the end of the reporting period so to
minimize the risk of manipulation.
oAltering audit procedures
oConduct interviews of personnel involved in areas with significant fraud risk.