financial reporting principles resulting from the misapplication of accounting

Financial reporting principles resulting from the

This preview shows page 59 - 61 out of 77 pages.

financial reporting principles resulting from the misapplication of accounting standards will result in a disagreement and thus a potential qualification of the audit opinion. Reporting to those charged with governance Instances of fraudulent financial reporting should be communicated to those charged with governance on a timely basis. The relevant audit procedures necessary to complete the audit should also be discussed. Other reporting responsibilities ISA 240 (Redrafted) indicates that where fraud has occurred, the auditor should consider other reporting responsibilities, such as communications with regulatory and enforcement authorities. In many jurisdictions, it would also be appropriate to communicate with shareholders, for example at a general meeting of members. Conclusion Current global economic circumstances mean that auditors face increased audit risk. Preparers of financial statements have the motive to make the published accounts 59
Image of page 59
AAA Technical Articles appear as good as possible, and the means to do this is earnings management or fraudulent financial reporting. Auditors therefore need to conduct risk assessment and audit procedures carefully, in order to fully identify indicators of manipulation, and to gather sufficient evidence to decide whether any manipulation is the result of bending or breaking financial reporting rules, for which the ultimate consequence may be a qualified audit opinion. Auditors, as well as shareholders, may need to approach all companies’ financial statements with an increased degree of scepticism in the current climate. Written by a member of the P7 examining team References 1. Recession-Related Risks, a Top Concern for Audit Committees, KPMG Audit Committee Institute Survey, 2008. 2. Namasiku L, Earnings Management, Student Accountant , April 2004. 16) Forensic auditing This article explores some of the issues relevant to forensic investigations. ‘Forensic auditing’ covers a broad spectrum of activities, with terminology not strictly defined in regulatory guidance. Generally, the term ‘forensic accounting’ is used to describe the wide range of investigative work which accountants in practice could be asked to perform. The work would normally involve an investigation into the financial affairs of an entity and is often associated with investigations into alleged fraudulent activity. Forensic accounting refers to the whole process of investigating a financial matter, including potentially acting as an expert witness if the fraud comes to trial. Although this article focuses on investigations into alleged frauds, it is important to be aware that forensic accountants could be asked to look into non-fraud situations, such as the settling of monetary disputes in relation to a business closure or matrimonial disputes under insurance claims.
Image of page 60
Image of page 61

You've reached the end of your free preview.

Want to read all 77 pages?

  • Fall '19

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture