4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_04

4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_04...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
© 2009 CCH. All Rights Reserved. Chapter 4 27 Chapter 4 Detecting Fraud in Financial Reporting CHAPTER SUMMARY Overview Accounting experts continue to debate the role of auditors in uncovering fraud. In the following sections, the current role of the independent auditor; the role of the internal auditor, the audit committee, and management; and the role of the forensic accountant are outlined. The last sections of the chapter describe in more detail the forensic accountant’s role and describe fraud detection guidance from authoritative sources. De f nitions of Fraud ¶4001 What Is Fraud? The chapter covers different de f nitions of fraud in the textbook. The instructor can discuss several of them. Responsibilities and Roles in Financial Reporting ¶4005 Independent Audit Procedures and the Auditor’s Role Analytical procedures are used to get a better idea of the client’s business and to identify areas of audit risk. The auditor must understand the implications of various risk factors to plan the f nancial audit and must also determine whether any specialists are needed to assist the audit. Audit evidence is gathered in two f eldwork stages: (1) the internal control testing phase, and (2) the account balance testing phase. Auditors apply audit procedures to obtain reasonable assurance that the f nancial statements are free of material misstatement. Auditing procedures also must include procedures to detect fraud. The primary objective of the auditor’s examination of f nancial statements is to express an opinion about whether the f nancial statements present fairly, in all material respects, values of assets and liabilities in terms of GAAP. Materiality, control risk, inherent risk, and detection risk must be considered. External Auditors and Fraud Detection. Although auditors have previously had the responsibility to detect material misstatement caused by fraud, SAS No. 82 details much more precisely what is required to ful f ll those responsibilities. Now, auditors must speci f cally assess and respond to the risk of material misstatement due to fraud and must assess that risk from the perspective of the broad categories listed in the SAS. In addition, the external auditor has to satisfy new documentation and communication requirements. Limitations of Audits and Auditing Standards. Basically, generally accepted audit standards (GAAS) are not designed to catch fraud other than f nancial statement fraud. Independent auditors are not charged professionally with f nding asset fraud, merely material misstatement of f nancial statements. Panel on Audit Effectiveness Recommendations. In October 1998, the Public Oversight Board, at the request of the then SEC Chairman, Arthur Levitt, appointed the Panel on Audit Effectiveness. Its charge was to review and evaluate how independent audits of the f nancial statements of public companies are performed and to assess whether recent trends in audit practices serve the public interest. AICPA’s SAS No. 99 Re
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 14

4Ed_CCH_Forensic_and_Investigative_Accounting_Solutions_04...

This preview shows document pages 1 - 2. Sign up to view the full document.

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