M5 Assignment 2 Discussion

Peer 1

M5 Assignment 2 Discussion

Fraud

Ruby Loftin posted Jun 8, 2018 2:01 PM

 

What are your responsibilities to detect fraud while performing a financial statement audit? (Do not discuss specific audit procedures, only the responsibilities.)

 

It is not the auditor’s responsibility to detect fraud while performing a financial statement audit. The auditor’s responsibility is to detect any misstatements, whether it is from fraud or error. Louwers, Ramsay, Sinason, Strawser and Thibodeau (2014) stated that “audit teams are not responsible to detect all fraud but are responsible to detect cases where fraudulent activity results in materially misstated financial statements” (p. 128). However, “it is management's responsibility to design and implement programs and controls to prevent, deter, and detect fraud” (Public Company Accounting Oversight Board [PCAOB], 2010, section .04).

 

What is your responsibility to report errors and fraud as detected to management, the board of directors, and parties outside the entity?

 

            The auditor is responsible for reporting errors and fraud as detected to management and board of directors. PCAOB (2010) stated that if “there is evidence that fraud may exist, that matter should be brought to the attention of an appropriate level of management” (section .79). Additionally, if the fraud involves upper management, then it should be reported to the audit committee before the audit report is issued (PCAOB, 2010).

            The only time an auditor should report to a party outside of the company is when they are being subpoenaed, to a successor auditor, and to funding agencies that receive government financial assistance (PCAOB, 2010).

 

Reference

 

Louwers, T., Ramsay, R., Sinason, D., Strawser, J., & Thibodeau, J. (2014).  Auditing & Assurance Services (6th ed.) [Argosy University]. Retrieved from https://digitalbookshelf.argosy.edu/#/books/1259562875/

 

Public Company Accounting Oversight Board. (2010). AU section 316: Consideration of fraud in a financial statement audit. Retrieved from https://pcaobus.org/Standards/Auditing/Pages/AU316.aspx

Peer 2

M5 Assignment 2 Discussion

Discussion—Misstated Financial Statements

Glenda Savage posted Jun 9, 2018 6:48 PM

What are your responsibilities to detect fraud while performing a financial statement audit? The primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. An auditor conducting an audit in accordance with professional standards is responsible for obtaining reasonable assurance that the financial statements as a whole are free from material misstatement, whether caused by error or fraud.

What is your responsibility to report errors and fraud as detected to management, the board of directors, and parties outside the entity? According to the auditing standards, the primary responsibility for the prevention and detection of fraud rests with the governing body and management. Management’s responsibilities include creating an environment where fraud is not tolerated, identifying risks of fraud, and taking appropriate actions to ensure that controls are in place to prevent and detect fraud. The governing body is responsible for ensuring that management is carrying out the tasks assigned to them in relation to fraud risk and prevention, as well as understanding the environment to determine if management can override or influence the controls in place. Fraud prevention and detection necessitate an ever-changing, multi-faceted process; however, even small steps to improve controls can lead to positive results.