Chapter 3 PP - Management Fraud and Audit Risk My actions...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Management Fraud and Audit Risk My actions are inexcusable. I'm sorry for the hurt that has been caused by my cowardly behavior. -- Scott Sullivan, former WorldCom CFO, at his sentencing. "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." - - Warren Buffet, billionaire investor 3-1 3-2 Errors are unintentional misstatements or omissions of amounts or disclosures in financial statements. Management fraud is intentional misstatements or omissions of amounts or disclosures in financial statements. 3-3 Illegal acts are violations of laws or government regulations by the company or its management or employees.  Direct-effect illegal acts produce direct and material effects on the financial statements (e.g., income tax evasion).  Indirect-effect illegal acts are far removed from financial statement 3-4 SAS 99 : Consideration of Fraud in a Financial Statement Audit  Design audit to provide reasonable assurance of detecting fraud that could have a material effect on the financial statements.  Perform fraud-related procedures SAS 54 : Illegal Acts  Focused primarily is on direct-effect illegal acts SAS 114 : The Auditors Communication with Those Charged with Governance 3-5 Gather information to identify risks. Identify risks. Assess risks, taking into account entitys programs and controls. Respond to results of assessment. Step 1: Audit team discussions (brainstorming) Step 2: Identify information necessary to assess fraud risk factors Step 3: a. Identify and b. Assess fraud risk factors Step 4: Respond to risk assessment Step 5: Evaluate audit evidence Step 6: Communicate fraud matters Step 7: Document fraud matters 3-6 Required procedure Objectives Gain understanding of  Previous experiences with client  How a fraud might be perpetrated and concealed in the entity  Procedures that might detect fraud Set proper tone for engagement Discussions should be ongoing throughout the engagement 3-7 Inquiries  Management  Audit committee  Internal auditors  Others Planning analytical procedures  Net income to cash flows (total accruals to total assets)  Days sales in receivables  Gross margin  Asset quality index (non current assets- p,p&e to total assets)  Sales growth index 3-8 Managements characteristics and influence Industry conditions Operating characteristics and financial stability 3-9 Management has a motivation to engage in fraudulent reporting....
View Full Document

This note was uploaded on 04/15/2011 for the course ACC 5996 taught by Professor Miller during the Winter '11 term at Wayne State University.

Page1 / 46

Chapter 3 PP - Management Fraud and Audit Risk My actions...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online