audit notes 17.docx - Fraudulent financial reporting...

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Fraudulent financial reporting – Material misstatement in financial statements – Deliberate/intentional – Manipulation of underlying accounting records – Misrepresentation/omission in financial statements – Misapplication of IFRS – Earnings management Eligibility to perform an engagement quality control review – Technical expertise – Experience – Authority – Independence from audit team Revenue recognition (high risk area) – Revenue often a subjective area – Revenue often a complex area – Adequacy of internal controls – Link to fraudulent financial reporting/earnings management – Example of deliberate manipulation of revenue – Cash-based business particularly high risk – Small/simple entities not high risk Revising materiality why we need it ? – Recognise materiality is subjective – Auditor's business understanding may change during the audit, making some balances and transactions material – Client's circumstances may change during the audit, making some balances and transactions more material – Adjustments to the accounts mean materiality has to be revised – Recognise the high-risk status of the client.
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Matters to consider before accepting the review engagement – Independence – types of threats raised – Appropriate safeguards – Competence and time frame – Elements to be included in the application and intended use – Key assumptions and time period covered Matters to be considered in agreeing the terms of the engagement (PFI) – Management's responsibilities – Intended use of the information and report – The contents of the business plan – The period covered by the forecasts – The nature of assumptions used in the forecasts – The format and planned content of the assurance report Content of an assurance report – Title/addressee – Identification of PFI – Management responsibility – Purpose of PFI – Restricted use of PFI – Negative assurance opinion re assumptions – Opinion on presentation – When may qualifications be nec – Statement/reference to procedures carried out Procedures on forecast financial information(work irrespective of question) – General procedures examples: o Re-perform calculations o Consistency of accounting policies used o Discuss how joint venture has been included o General analytical procedures for balance sheet and income statement look for trends and then ask why it is like that? Money laundering Stages of money laundering Placement – cash based business and mixing of illegal and legitimate sources of cash – Layering – complex transactions to hamper tracing the cash such as transfer overseas – Integration – investing or spending cash to place it into the legitimate Economy
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Procedures ML – Client identity – Client business activity – Client address – Client principal shareholders and directors – Engagement letter clarification Elements of an anti-money laundering programme – MLRO – senior person, responsibilities
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