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Hi Kim,
In the case of Saul & co in the September 2022 exam, there was management fraud where a director stole money, this was not realized by the auditor throughout the audit but it was reported by the finance director at the completion stage. it appears to be immaterial by value but further probing is needed to conclude if it is material by nature.
My question is, what is the responsibility of the auditor in reporting fraud externally? does it have to be material to report the action? if yes, what would happen to the confidentiality agreement(as such information is likely to cause fear to current and potential shareholders, and loss of reputation if it goes public)? if not(“in honor of confidentiality”), will that not “impair” the ethics of an ethical accountant(as he is allowing the guilty to get away and commit more fraud in the future.)?I would need a balanced argument for knowledge and exam. so, please give as much guidance as you can.
Thanks.Re Saul & Co (The Goodman Group) from MARCH 2020 – you have a published answer and marking scheme to see what is necessary to “Discuss the implications of the fraud for the COMPLETION of the audit, and the actions to be taken by the auditor. (6 marks)” Reporting to management/TCWG (in the first instance) is only a small part of this.
Reporting externally is peripheral to this requirement, so it doesn’t need “a balanced argument”.
Here are some pointers on the subject:
– Prevention/detection and correction of fraud is management’s responsibility
– Per ISA 240, a fraud must be communicated to TCWG if it results in material misstatement or if management is implicated. Other frauds should be communicated to a suitable level of management.
– There is NO means by which the auditor can report fraud to the shareholders in the auditor’s report if the financial statements are not materially misstated – even if the financial statements were materially misstated, the auditor would not say “oh, and by the way, this was a management fraud”. Think about it – if a director stole cash by fraudulent means, as long as the financial statements don’t include that cash as an asset – they won’t be misstated (!!)
– It’s for the other directors/TCWG to deal with management fraud.
– If the audit is frustrated by the integrity of management as as whole, the auditor would resign/withdraw from the engagement.ooh was it march 2020? I was doing the quiz in the practice platform and the answer given there are just listed guidance on what carry a mark; marking scheme. where would I access the published answer, please?
The rest of the doubts are cleared. thanks.
I see – you are looking at the latest specimen exam version.
When you open an exam in the CBE platform to mark it – you may first see the marking scheme in the left hand frame.
In the top right corner in the box “Marking” staring “Roll Up Scor: 0/100” you will see under that:
Question Score:
Question Marking Guidelines
Click here to see the guideline.Question Sample Answer
Click here to see the sample answer.The “Click here” is in a shade of gray – it is THIS “Click here” that you need to click on in order to see the answer.
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