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Below i will post some questions. If anyone have any idea i will be very pleased:
1) Recommend procedures to assess the risk of material misstatement due to fraud?
2) Inherent limitations of an audit and reason for not detection of fraud during audit procedures?
Auditors should always apply professional scepticism and part of that is not to believe that everyone is necessarily honest. However, they are not specifically charged with finding all fraud. However, any material fraud should be found (as should any other material impact on the FS.
Generally the risk of fraud occurring will go hand in hand with other risk factors: cash business, high value portable inventory, complex transactions, lack of segregation of duties. More work should automatically be performed on the high risk areas.
The reasons that fraud might not be detected are:
1 Immaterial
2 Bad luck during sample selection
3 Poor audit planning so that vulnerable areas are not properly investigated.
4 Lack of scepticism/familiarity etcI found a question that ask me to recommenmd six procedures that an auditor should perform in order to assess the risk of material misstatement due to fraud.
What are the procedures?
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auditor should perform analytical procedure in order to identify any unusual relationship that may cast significant doubt for fraud..
auditor should inquire management and those charged with governance about any suspectible error fraud which may material effect on FS
auditor should inquire internal auditor about any actual or suspectible fraud
auditor may inquire management about the ways it detects fraud
audiot can inqiuire management for the ways they response to assessed risk of fraud
auditor should also assess the inherent risk to identify error or possible fraud which may cause fs to be materially misstated..
auditor may also observe the communication process with regards to fraud between internal audiot, management and those charged with governance…
note: plz do post here if anything above is deemed wrong..
Based on my understanding(i might be wrong) audit evidence is found through performance of Tests of controls and substantive procedures
First of all there must be test of controls. If it is found that the controls are poor. then there must be extensive substantive procedures.Substantive procedures should be performed on class of transactions, A/c balances andf disclosure notes. Some examples of substantive procedures are:
(1) Confirmation of balances from 3rd parties (via confirmation letters)
(These confirmations should be obtained from bank, supplier, debtor)
(2)The auditor should apply analytical procedures (checking variances/ratios
against previous year FS or against other similar industry figures.
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